By Fransiska Nangoy
JAKARTA (Reuters) – Indonesia’s new government aims to revive oil and gas production, with plans to cut regulations, reactivate idle wells and enhance output at producing assets in hopes of reversing a decades-long decline in output, officials have said.
President Prabowo Subianto, who took the oath of office on Sunday, also plans to build on the previous administration’s efforts to tap massive gas discoveries in South Andaman and lift biofuels use.
Formerly a member of the Organization of the Petroleum Exporting Countries (OPEC), Indonesia’s oil production has declined to under 600,000 barrels per day (bpd) this year from a peak of around 1.6 million bpd in the 1990s due to ageing blocks and sluggish investment.
At the same time, oil consumption in the world’s fourth-most populous country has more than doubled to 1.5 million bpd, leading to imports of oil and fuel products that have averaged $28 billion annually in the past decade.
“We must have energy self-sufficiency and we are capable to be self-sufficient,” Prabowo said in his inauguration speech, citing rising geopolitical tension.
While Prabowo’s predecessors also sought to reverse declining production, investment has been hindered by red tape and as well as competition for funding, including from renewables.
Indonesia has announced large gas discoveries in recent years and is keen to accelerate development to take advantage of rising LNG (liquefied natural gas) demand locally and abroad.
“We will remove various regulations that hinder the exploration process, cutting from 320 permits to 140 permits, and we will slash those further to shorten the process,” Bahlil Lahadalia, Prabowo’s energy minister, said on Oct. 14.
Komaidi Notonegoro, energy analyst at ReforMiner Institute, said exploration and production contractors must deal with 19 often-rival agencies to secure permits.
“The oil and gas contractors should be busy looking for new reserves instead of taking care of permits, it takes too much time,” he said.
REACTIVATING IDLE WELLS
To increase production, the new government plans to push reactivation of nearly 5,000 idle wells, Bahlil said.
“Our target is to increase oil production by around 200,000 bpd by optimising idle wells and by technology intervention,” Bahlil said last week, without specifying a timeline.
The government is also pushing for more projects using so-called enhanced oil recovery (EOR) to extract oil from aging wells which require added cost. ExxonMobil Corp and state oil firm Pertamina are each in early EOR stages on separate projects.
“The government’s main concern is volume, but these contractors are running a business. The question is, whether the government will be willing to compensate” for the added cost, Komaidi said.
To reduce liquefied petroleum gas (LPG) imports, the new government aims to double production of the cooking fuel from 1.7 million tons per year, Bahlil said. Indonesia imports around 70% of the 8 million tons of LPG it consumes annually.
Prabowo also has ambitious targets to increase biodiesel and bioethanol use, which some experts have said should be his main energy sector focus.
“We have to be realistic. Prabowo can no longer rely on oil and gas,” Fahmy Radhi of Gadjah Mada University said. “It is best if he put renewable energy as a high priority and focus on that from the get-go.”
Prabowo plans to increase the share of palm oil-based fuel in diesel to a world-leading 50%, from 35% now, and on Sunday listed cassava and corn, in addition to palm, as potential biofuel feedstocks.
(Reporting by Fransiska Nangoy; Editing by Florence Tan and Raju Gopalakrishnan)
