Indonesia aims to reverse oil declines and double gas output by 2030

• Published date: 01 May 2020
• DOI: http://doi.org/10.1111/oet.12770
• Date: 01 May 2020

FOCUS

Indonesia aims to reverse oil declines and double gas

output by 2030

Indonesia plans to boost oil and gas production by expan-

ding the role of national oil company, Pertamina,

although this approach has failed to produce results in

the past. Many see a fundamental change toward a more

competitive and less interventionist regulatory regime as

the only way to prevent falling gas exports and growing

oil import dependence.

Indonesia is seeking to rapidly increase output of both

oil and gas—the country has significant proven and prob-

able reserves, and on paper it should be possible to do so

given the funds and technical expertise. While its position

as an oil exporter reversed some years ago, it remains a

major gas exporter. The government is optimistic, with

Indonesia's upstream regulator, SKK Migas,

1

forecasting

a 12.4% growth in Indonesian gas production this year,

and a 1.2% rise in oil production—although this could be

hampered by the recent virus-related collapse in oil and

gas prices.

Looking further ahead, the official target for gas is to

double output over the next 10 years to 12.3 bn ft

3

/d. Much

of this will go to liquefied natural gas (LNG) liquefaction

plants, with two major new projects in the pipeline (see

below). However, a large and growing portion of the LNG

Indonesia produces is delivered to its own LNG import ter-

minals to meet rising domestic energy demand—so is not

the major national money-earner that it used to be. In addi-

tion, several relatively high-priced term export deals are up

for renegotiation this year (see below).

SKK Migas also has an ambitious oil production tar-

get of 1 mn bpd for the country by 2030—a rise of about

30% compared to current output levels (see Table 1). But

this will not be enough to turn Indonesia back into an

exporter, or revive hopes of re-joining OPEC—currently,

Indonesia consumes around 1.2 mn to 1.3 mn bpd, creat-

ing a need to import about 500 000 bpd of refined prod-

ucts, and this is expected to rise significantly by 2030, to

perhaps 2 mn bpd.

1|AMBITIOUS TARGETS

It is difficult to know how to treat official targets as they

have proven overly optimistic in the past (output of both

oil and gas has fallen by about a third since 2010—see

Table 1) and are high compared to independent analysts.

For example, Rystad Energy expects gas output to fall 1%

this year (well below the SKK Migas 12.4% growth esti-

mate), to 5.87 bn ft

3

/d (forecast made on 20 February).

Gas production will receive a slight boost from the

launch this year of the Merakes field operated by Italy's

Eni, which will offset some declines elsewhere, but most

of the upside will not be felt until at least 2021,

Rystad said.

Rystad also expects a 3.8% slide in Indonesian oil out-

put to 718 000 bpd in 2020, given there are no major new

developments in the pipeline—5% below SKK Migas' tar-

get. Past forecasts from independent analysts, including

those within the country, have normally turned out to be

more accurate than those of the regulator/government.

Rystad's estimates also look more likely given recent data

from the Energy and Mineral Resources Ministry, which

shows that oil and gas investments to Indonesia last year

fell 7% short of the $13.4 bn annual target, which is likely

to cut output below expected levels this year. The impact

of corona virus could cut output even further.

Regarding the 2030 targets, the General National Energy

Planning road map—the regulatory guide for Indonesia's

energy transition—projects oil and gas production rates will

reachamuchlower667000bpdand5.81bnft

3

/d by then,

which is probably a more realistic view.

2|RESOURCE NATIONALISM

Current policies toward the upstream oil and gas sector

are driven by “resource nationalism,”where national oil

company, Pertamina, along with a number of private

Indonesian producers, are encouraged to pick up assets

previously run by overseas investors. Such a policy has a

better chance of working when the resources are cheap

and easy to produce, and when a country has sufficient

expertise and capital to exploit them independently.

While Indonesia does have significant reserves, they are

scattered widely, often in remote areas, and tend to be

expensive to produce; while Indonesian public finances

are limited, and domestic expertise is still developing.

DOI: 10.1111/oet.12770

4© 2020 John Wiley & Sons Ltd Oil and Energy Trends. 2020;45:4–17.wileyonlinelibrary.com/journal/oet