It’s a gas: Decreasing oil production draws focus to other energy sources

In order to compensate for the inevitable decline of domestic oil production and supplement coal supplies, Indonesia is increasingly leaning on its natural gas reserves to satiate a growing energy appetite and boost export revenues. With production rates steadily increasing over the past decade and more fields expected to contribute in the near future, it may be possible for domestic supplies to sustain expansion.

Domestic natural gas production totalled 75.6bn cubic metres (bcm) in 2011, which was down 7.8% from the 82.0 bcm output in 2010, but above the previous year’s 71.9 bcm, according to data from BP’s “Statistical Review of World Energy 2012”. Total E&P Indonesia produced just over a third of all natural gas in the country, accounting for 34% of the total as of March 2012, according to BP Migas. This was followed by BP Berau (17%), ConocoPhillips (15%), Pertamina (13%), Vico (6%), ConocoPhillips Indonesia (6%), PetroChina International (3%) and 2% each for PHE-ONWJ, PHEWest Madura Offshore and Medco E & P Indonesia. Over half of this was exported in 2011, with 8.7 bcm transported via pipeline to Singapore (6.7 bcm) and Malaysia (2.0 bcm), and the remaining 29.2 bcm shipped in the form of liquefied natural gas (LNG).

NEW FINDS: New discoveries have also outpaced production rates, leading to an increase in estimated reserves to 3trn cu metres (tcm) as of 2011 compared to 2.6 tcm in 2001 and 1.8 tcm in 1991. This trend is expected to continue as three large-scale projects – Indonesia Deepwater Development (IDD), Abadi Field Masela Block and Jangkrik Field Muara Bakau Block – begin lifting natural gas within the next five years. The furthest along of the three is IDD, being developed by Chevron Indonesia through four production sharing contracts – Ganal, Rapak, Makassar Strait and Muara Bakau – encompassing the gas fields of Bangka, Gehem, Gendalo, Maha and Gandang. Requiring an estimated investment of $4bn-7bn, IDD is projected to begin producing by 2015 and its maximum output should eventually reach 900m standard cu feet per day (mmscfd). Developed by Inpex Masela, the Abadi field is located in the Arafuru Sea and possesses proven gas reserves of 6.05trn cu feet (tcf). The $5bn project has a projected output of 355 mmscfd by 2018 and will include a floating LNG refinery with a capacity of 2.5m tonnes per annum (tpa). Conveniently located along the existing Bontang LNG plant pipeline in East Kalimantan and 70 km east of Balikpapan, the Jangkrik field project is being developed by Eni Maura Bakau and it is projected to produce around 290 mmscfd by 2016.

ABOVE EXPECTATIONS: Domestic consumption, although increasing, still accounts for less than half of production at 37.9 bcm in 2011. This was a 5.9% dip from 2010 levels, although the overall trend indicates 10 years of growth starting from 31 bcm in 2001. The comparatively clean-burning fossil fuel is already making up ground on the more widely employed oil- and coal-fired power plants supplying the nation’s electricity grid and the new power plants in various stages of development. Many new gas sales purchase agreements to supply power plants were signed in 2012, with five in October for a total contracted volume of 75.03trn British thermal units.

LNG: With no regasification facilities operational before 2012, Indonesia sent 29.2 bcm of LNG abroad in 2011, down from 31.8 bcm in 2010. The primary importers were Japan with 12.6 bcm, South Korea with 10.8 bcm, China with 2.7 bcm and Taiwan with 2.6 bcm. Mexico, Chile and Thailand are also in the mix, although they receive smaller quantities.

As of 2011 Indonesia operated three separate liquefaction terminals across the country to support the export industry. By far the largest of these facilities – with an annual capacity of 22.59m tonnes – is the Bontang LNG plant located in East Kalimantan. The oldest plant in operation since beginning production with its first processing train in 1977, Bontang now operates eight trains and is owned by a consortium of Pertamina (55%), VICO (20%), Ianpan-Indonesia LNG (15%) and Total (10%). Established in 1978, the Arun plant in Aceh operates six trains with a total capacity of 6.8m tpa and is owned by Pertamina (55%), ExxonMobil (30%) and Japan-Indonesia LNG (15%). The third LNG plant operating in Indonesia is the 7.6m-tpa-capacity Tangguh facility, which is held by BP (37.16%), MI Berau (16.3%), CNOOC (13.9%), Nippon (12.23%), KG (10%), LNG Japan (7.35%) and Talisman (3.06%).

NEW INFRASTRUCTURE: With new gas fields primed for exploitation in the coming years, the country is moving forward with LNG infrastructure expansion plans that should significantly increase the capability of both domestic use as well as export potential. A third train is currently under construction at the Tanggua plant, which will increase output by 3.8m tpa upon completion in 2018. A number of brand new green field projects are also under way, with the most developed being the Sulawesi LNG plant scheduled to come on-line in 2014. A joint venture between Mitsubishi with a 44.9% stake, Pertamina (29.0%), Kogas (15%) and Medco Energy (11.1%), the initial single train complex will have a capacity of 2m tpa.

Indonesia is also embarking on an effort to upgrade gas transportation and receiving terminals to increase domestic capacities. With existing pipelines currently extending only across parts of Sumatra and Java (although there are plans for future pipelines linking Java and Kalimantan), constructing regasification terminals is the most flexible option for transporting gas domestically while still retaining the ability to reroute shipments for export in the future.

Located in Jakarta Bay, the country’s first floating storage and regasification unit (FSRU) came on-line in May 2012, boasting a receiving capacity of 3m tpa. Operated by Nusantara Regas, a subsidiary of Pertamina (with 60% ownership) and Perusahaan Gas Negara (with 40% ownership), the facility will primarily supply the gas-fired power plants of Tanjung Priok, Murara Karang and Pupuk Kujang with gas sourced from Bontang as well as other imported sources. Three other regasification plants are also in various stages of development, including the Lampung FSRU located in Labuhan Maringgai, South Sumatra, which has a capacity of 2m-3m tpa scheduled to begin operations in 2014. The remaining projects located in East and Central Java (3m-tpa capacity) and Arun ( estimated 1.5m-2.3m tpa), are operated by Pertamina and are expected to come on-line sometime after 2014.

DOWNSTREAM: Increased domestic usage of natural gas will be supported by the construction of greater downstream-oriented gas infrastructure, such as LPG and compressed natural gas (CNG) facilities. Seven new LPG plants ranging in capacity from 3800 tpa to 259,000 tpa are to be built, with five in Java and two in Sumatra, according to Ministry of Energy and Mineral Resources (MEMR) plans that did not include completion date estimates. In November 2012 Perusahaan Listrik Negara also publicly announced plans to construct two new 20-mmscfd CNG facilities at its Muara Tawar power plant in West Java and the Tambak Lorok plant in Central Java by the end of 2013. The 2013 draft state budget included Rp230bn ($23m) as well to expand gas distribution pipelines to 16,000 new households in four cities.

BRAVE NEW WORLD: While the dramatic expansion of Indonesia’s conventional natural gas production and exporting operations is spurring a transformation of the country’s energy sector in both domestic use and export markets, the untapped potential of unconventional shale gas and coal bed methane (CBM) could more than triple the nation’s gas reserves. Already a proven game changer as evidenced in the explosion of shale gas supplies in North America, estimated domestic shale and CBM gas reserves stand at 570 tcf and 453 tcf, respectively, according to the MEMR Directorate of Oil and Gas.

Boasting the world’s second-largest CBM reserves after China, the government has been proactive in making the sector more attractive for investors through the passage of laws specifically targeting CBM. These include Regulation No. 36/2008, which clarified issues arising from overlapping areas of mining or oil and gas work. CBM reserves are spread across the country, with particularly concentrated reserves centred in South Sumatra, South Kalimantan and East Kalimantan. Although domestic commercial extraction of CBM has yet to advance past the testing stage, the government has high hopes for the sector and has made targets to raise production levels of this gas over the next two decades. Output is projected to be 500 mmcfd by 2015 and increase steadily to 1000 mmcfd by 2020 and 1500 mmcf by 2025. From the beginning of 2008 to April 2012, around 50 contracts were signed for the exploration and production of the gas.

Only profitable if located near the surface (300-400 metres underground), shale gas is situated in seven primary basins spread across the country with three of these located in Sumatra and two each in Java and Kalimantan. With access to LNG and CNG plants, the five basins in Java and Kalimantan could provide costeffective benefits by utilising existing infrastructure.


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The Report: Indonesia 2013

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