President Susilo Bambang Yudhoyono said Tuesday the government would further ease investment procedures and offer more incentives to attract foreign investors to develop the country's untapped gas reserves.
Opening a natural gas seminar and exhibition in Jakarta, the President said the government was prepared to offer tax and production sharing incentives to help meet rising gas demand at home, while at the same meeting the country's liquefied natural gas (LNG) export commitments.
"The government will consider various new fiscal incentives such as value added tax (VAT) and import duties, as well as tax reforms to lure more investors to the country's gas sector," Yudhoyono said.
Energy and Mineral Resources Minister Purnomo Yusgiantoro acknowledged the importance of private investors in increasing oil and gas production in the country.
The ministry has targeted a 30 percent increase in oil and gas production by the end of 2009, from the current one million barrels per day (bpd) of oil and 7.5 billion standard cubic feet per day (bcf) of gas.
Indonesia's total gas reserves of 187.1 trillion standard cubic feet (tcf) has not been fully tapped due to the lack of new investment.
According to figures from the Energy and Mineral Resources Ministry, the 187.1 tcf of gas reserves includes about 94 tcf of proven reserves, mostly in western Indonesia, and potential reserves of about 93.1 tcf
With the current production of 7.5 billion standard cubic feet per day, Indonesia is having difficulty fulfilling its LNG export commitments to Japan, Korea and Taiwan, as well as meeting the surge in the demand from local industrial buyers.
Due to declining gas production, the government may be forced to cut LNG exports by 19 percent to Japan, South Korea and Taiwan this year.
Indonesia may ship 19.4 million metric tons of LNG this year, less than the contracted 24 million tons. State oil and gas firm Pertamina is also negotiating the postponement or replacement by other producers of 36 shipments from the Badak LNG plant in Bontang, East Kalimantan, and 22 from LNG producer PT Arun NGL in Lhok Seumawe, Aceh.
Domestic demand is also rising as more local companies turn to gas to reduce costs amid sharp increases in oil prices.
According to data from the Upstream Oil and Gas Regulatory Agency (BP Migas), domestic gas demand rose to 18.1 tcf in 2006 from 6.8 tcf in 2003.
The government's policy on the use of gas also has changed due to the sharp increase in oil prices, particularly for power generation. Indonesia is now prioritizing gas production for domestic needs rather than for exports.
This policy change, however, has discouraged new investors because the price of gas sold to local buyers is mostly cheaper than gas sold to foreign buyers.
President Yudhoyono said the government would establish a comprehensive gas pricing policy for the domestic market, so producers would not be disadvantaged when selling gas to domestic buyers.
Director General for Oil and Gas Luluk Sumiarso said at the seminar the government would introduce a domestic gas price based on an agreement between producers and consumers, and if necessary the government would provide subsidies for consumers.
To boost investment in gas exploration activity, Minister Purnomo said the government would consider applying a new production split ratio of 51 percent for the government and 49 percent for producers. At present, producers receive 30 percent of net production, while the other 70 percent goes to the government.
Purnomo also said the government would ease tax regulations, including waiving value added taxes, to boost exploration and production,
On Monday, 16 new contracts for oil and gas blocks were signed, with a total investment of US$201.03 million, in addition to signing bonuses of $25.45 million.
Among those signing contracts was China's largest offshore oil producer, CNOOC, and a consortium made up of the third-biggest oil company in the U.S., ConocoPhillips, and Norway's Statoil ASA.