Indonesia Oil & Gas Report Q1 2014
Published by Business Monitor International
on Nov 15, 2013
, 170 pages
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The outlook for the country's oil and gas sector is becoming increasingly uncertain. We forecast a long-term decline in total liquids production and a stagnation of gas production. This is mainly a result of the slow pace of exploration and development, exacerbated by an increasingly uncertain regulatory environment as resource nationalism creeps into the government's policy towards the sector. Opportunities for exports will be further compromised by the domestic market's increasing energy demand. Hence, falling oil and gas exports is another key trend we identify for Indonesian oil and gas.
The main trends and developments we highlight for Indonesia's oil and gas sector are:
- We forecast that oil and gas reserves will most likely be on a downward trend in the coming decade: oil reserves are expected to decrease from an estimate of 4.0bn barrels (bbl) of oil at the beginning of 2013 to 3.7bn bbl in 2017, falling further still to 3.4bn bbl by 2022. For gas, we expect reserves levels to be stagnant as addition from exploration successes in East Kalimantan cancels out natural depletion from existing fields. Reserves are forecast to fall from 3.07tcm in 2013 to 2.80tcm in 2017, and fall further to 2.51tcm unless the pace of drilling activity picks up.
- Despite this outlook, Indonesia is a country where much below-ground potential continues to exist. If the country relaxes its nationalist stance on resources, there is considerable upside potential for both oil and gas reserves - greater drilling of its unexplored deepwater areas and its unconventional resources - coal-bed methane and shale gas.
- We expect total liquids production (excluding refinery processing gains) to rise from an estimate of 919,670b/d in 2013 to 926,180b/d in 2014 and 932,260b/d in 2015, owing to major fields finally coming on-stream or ramping up to their full production capacity. Thereafter, in the longer term we see oil output trending downwards to 884,840b/d in 2017 and hitting a low of 808,280b/d by 2022.
- Despite grand plans to expand the country's refining capacity, difficulty in financing greenfield projects on top of modernising old plants in a unfavourable policy environment will see limited change to Indonesia's downstream landscape. We expect its refining capacity to stay stagnant at around 1.12mn b/d from 2015 through to the end of our forecast period. Total refined oil product output is expected to rise initially from an estimate of 981,840b/d in 2012 to 990,600b/d in 2016 - a result of an increase in output from modernised Cilacap and Balikpapan. However, growing inefficiencies in older plants could reverse this uptrend as utilisation rate falls, thereby leading to a slide in production downwards to 973,840b/d by 2022.
- 2013 demand is forecast to fall from 1.38mn b/d in 2012 to 1.36mn b/d in 2015, but see a trend reversal as it increases back to 1.39mn b/d in 2017 and 1.47mn b/d by 2022. With demand continuing to outstrip supply, the country's import requirement of fuel products will continue to rise, from an estimate of 402,160b/d in 2012 to 418,270b/d in 2018, and to 496,400b/d by 2022.
- Owing to production problems, we expect total gas production to have fallen to 71.3bn cubic metres (bcm) in 2012. Major gas projects expected on-stream in the next five years should support a slight rise in production, which we forecast at 77.0bcm in 2017 as declining production rates from existing fields will be cancelled out by new gas developments. Thus we expect production levels to stay relative stagnant at 76.7bcm by 2022. Regulatory risks remain great and policy uncertainty underpins our sombre outlook of Indonesia's gas production within our 10-year forecast period.
- The country's gas consumption is estimated at 39.1bcm in 2012. With an increasing amount of new gas from projects reserved for the domestic market, this allows room for domestic gas demand to grow to about 48.0bcm in 2017 and hit 55.7bcm by 2022.
- The faster rate of growth in consumption to production means that gas exports could initially increase from an estimate of 32.2bcm in 2012 to 33.3bcm in 2014, but we expect an increasing application of the 40% domestic gas reservation rule to eventually apply to both existing and future gas projects which will limit export growth. Hence, from 2015, despite an expected increase in LNG production capacity, net exports are likely to fall to 29.0bcm by 2017 and 21.0bcm by 2022.
- The government and House of Representatives have agreed that new contracts could limit gas exports to 50% or less of total production. The Energy and Mineral Resource Ministry also implied that contract renegotiations could be in place if they are deemed not to be 'beneficial' for the country. This could challenge industry interest in new gas blocks, and could adversely affect the rate of development of its unconventional resources.
- Greater confidence in Indonesia could be inspired if there is a more consistent policy towards the oil and gas industry; for one, the permanent establishment of a new upstream regulator to replace BPMigas. Temporary regulator (at time of writing), SKKMigas, has yet to be made permanent. Given the corruption scandal plaguing the make-shift regulator, it is unlikely to receive full regulatory authority anytime soon in the future. Moreover, proposed plans could see SKKMigas assume the identity of a state-owned firm - renamed as the National Upstream Oil and Gas Development Company (PPMN) - which could take a participating interest in projects it jointly signs with contractors.
At the time of writing we assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Global GDP in 2014 is forecast at 3.1%, up from an assumed 2.6% in 2012. For 2015, growth is estimated at 3.3%.
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