Indonesia Oil & Gas Report Q2 2014
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 2018, falling further still to 3.4bn bbl by 2023. 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 2.9tcm in 2018, and fall further to 2.7tcm 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 - coalbed methane and shale gas.
- We expect total liquids production (excluding refinery processing gains) to rise from an estimate of 913,000b/d in 2013 to 922,000b/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 859,000b/d in 2018 and hitting a low of 786,000b/d by 2023.
- 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 972,000b/d in 2013 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 969,900b/d by 2023.
- 2013 demand is estimated to have remained stagnant at about 1.38mn b/d but expect to an increase again as the conclusion of the 2014 elections provide more certainty with regard to the country's macroeconomic policies, thereby supporting consumption. This could lead to consumption of about 1.44mn b/d in 2018 and 1.57mn b/d by 2023. With demand continuing to outstrip supply, the country's import requirement of fuel products will continue to rise, from an estimate of 411,970b/d in 2013 to 460,950b/d in 2018, and to 598,480b/d by 2023.
- According to SKK Migas gas production was about 80.9bcm in 2012, though the EIA (whose estimates have yet to be released) could have a lower production figure as frequent production problems reported in 2012 are likely to have impaired output. Major gas projects expected on-stream in the next five years should support a rise in production, which we forecast at 88.3bcm in 2018 as declining production rates from existing fields will be cancelled out by new gas developments as production incrementally rises to 93.7bcm by 2023.
- The country's gas consumption is estimated at 46.7bcm in 2013. 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 62.7bcm in 2018 and hit 66.8bcm by 2023.
- 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 from an estimate of 36.1bcm in 2013 to 26.5bcm by 2018 but could rise slowly to 26.9bcm by 2023, supported by the addition of the third train to Tangguh LNG and Abadi LNG between 2018 to 2023.
- 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 stateowned 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. Overall, we are forecasting 3.2% global real GDP growth in 2014, up from 2.6% in 2013. This will be driven by significant acceleration in developed state growth, to 2.0% from 1.2% in 2013, and in contrast to the modest improvement in emerging markets to 4.9% from 4.6%. For 2015, growth is projected at 3.3%.
Click here to open the POPUP
You've added the following report to your cart: