Uncertainties linger in petroleum sector<\/p>\n
Fitri Wulandari, The Jakarta Post, Jakarta<\/p>\n
The oil and gas sector started to pick up slowly this year
\nafter experiencing a slump last year, but uncertainties in the
\ncountry's business environment will remain the main constraint
\nfor some time into the future.<\/p>\n
Iin Arifin Takhyan, the director general of oil and gas at the
\nMinistry of Energy and Mineral Resources said that this year, the
\noil and gas sector had improving compared to the previous year
\nand still had a promising outlook for the years ahead.<\/p>\n
\"The oil and gas sector is the only sector that never
\nexperiences a crisis. It will be improving in the future,\" he
\nremarked.<\/p>\n
As of the end of this year, the government has awarded 16 oil
\nand gas concessions and bagged a total of US$343.82 million in
\ninvestment commitments. This is a huge leap from last year when
\nthe government could only get two contracts -- a new contract and
\nan extension contract -- but is still much lower than in 1997,
\nwhen the government awarded a total of 28 contracts.<\/p>\n
The government expects to award another 10 new oil and gas
\nacreages next year.<\/p>\n
The number of contracts reflects investor sentiment toward the
\ncountry's business environment, and also bring hopes for the
\ndiscovery of new hydrocarbon reserves in the future to compensate
\nfor declining reserves in the existing fields.<\/p>\n
Oil and gas has been a major revenue resource for Indonesia,
\nmaking up 29 percent of the country's foreign exchange earnings.<\/p>\n
According to Iin, crude oil production now stands at 1.16
\nmillion barrels per day (bpd), which is much lower than the 2003
\nstate budget target of 1.27 bpd. It is also lower than the 1.317
\nmillion bpd quota set by the Organization of Petroleum Exporting
\nCountries (OPEC).<\/p>\n
Meanwhile, natural gas output has stabilized at an average 3
\ntrillion cubic feet this year with 65 percent of the output being
\nused for exports and the rest for domestic consumption.<\/p>\n
Iin said the signs of revival were evident from the
\ndevelopment outlays of oil and gas companies, which surged from
\n$5 billion last year to $6.9 billion this year.<\/p>\n
As far as liquefied natural gas (LNG) is concerned, this year
\nIndonesia struggled to keep its position as the world's largest
\nLNG exporter within an increasingly competitive market with the
\nemergence of new competitors, such as Australia and Malaysia.<\/p>\n
But, Indonesia managed to win a tender and ink several initial
\nagreements with buyers this year.<\/p>\n
In July, the country's third LNG plant, Tangguh in Papua
\nprovince, was named the winner of the tender to supply 1.5
\nmillion tons of LNG annually to South Korean power firm SK and
\nsteel firm POSCO for a period of 20 years. The contracts are
\ncurrently being finalized.<\/p>\n
The new contract will bring total demand to 4.1 million tons
\nfor gas from Tangguh, which is owned by a consortium led by
\nAnglo-American energy giant BP Plc. Last year, Tangguh clinched a
\ndeal to supply the Chinese province of Fujian with 2.6 million
\ntons of natural gas per annum.<\/p>\n
Indonesia at present has a production capacity of 31.6 million
\ntons from the Bontang LNG plant in East Kalimantan and Arun LNG
\nplant in Aceh province.<\/p>\n
This year, the Oil and Gas Implementing Body (BP Migas) signed
\nan initial agreement with Sempra Energy and Marathon Oil Corp. to
\nsupply 6 million tons of LNG per annum to the U.S., the world's
\nlargest energy consumer.<\/p>\n
Widjajono Partowidagdo, an energy expert from the Bandung
\nInstitute of Technology (ITB), said that although the sector
\nshowed an improvement this year, uncertainties still lingered and
\nwould likely persist in the future.<\/p>\n
He cited uncertainties related to fiscal aspects such as
\ntaxation and uncertainties related to security, which were
\npreventing an influx of investment into the sector.<\/p>\n
This was evident from the fact that local and regional firms
\ndominated the oil and gas block tenders this year, Widjajono
\nsaid.<\/p>\n
\"The seven sisters would like to see how these small companies
\nare doing first. If they see the level of uncertainty being
\nreduced, they will come back to make major investments in
\nIndonesia,\" Widjajono told The Jakarta Post.<\/p>\n
The \"Seven sisters\" is the nickname for the seven major world
\noil and gas companies that have dominated the world energy market
\nsince World War II. Among them are Royal Dutch Shell,
\nChevronTexaco and ExxonMobil.<\/p>\n
The likelihood of Iraq resuming oil production next year will
\nfurther add to the uncertainty.<\/p>\n
\"Major energy companies will prefer to invest in Iraq when
\nsituation there improves rather than investing in Indonesia. So
\nwhile everything is uncertain right now, they are in a wait-and-
\nsee situation,\" Widjajono said.<\/p>\n
The fact that the government offers better split revenues,
\nWidjajono said, would not do much unless the government could
\nguarantee consistent policies.<\/p>\n
Brian WG Marcotte, chairman of the Indonesian Petroleum
\nAssociation (IPA), which groups together all oil, gas and
\ngeothermal companies operating in Indonesia, said that one of the
\nmain demands of oil and gas investors was government policy
\nconsistency in relation to contractual and fiscal terms.<\/p>\n
Inconsistency in policy would cause uncertainty and hurt
\ninvestor confidence.<\/p>\n
The facts showed that inconsistency in policy could cost the
\ngovernment dearly. For instance, following the economic crisis,
\nthe government postponed a geothermal project owned by American
\npower firm Karaha Bodas in 1998. The move prompted the firm to
\nfile arbitration proceedings against the government and state oil
\nand gas company Pertamina. The case has hurt Indonesia's
\nreputation in the international community and Pertamina has spent
\na lot of money to hire top lawyers in the legal battle.<\/p>\n
\"There are certain risks with any investment. When we make a
\ndecision, everything should stay consistent throughout the period
\nof the contract. If it stays consistent, then we are relatively
\nsatisfied and our level of confidence will be high,\" he said in
\nan interview published by the Post.<\/p>\n
Some investors also said that the unclear definitions of the
\nroles played BP Migas as the new regulatory body and Pertamina,
\nthe former regulator of the industry, added to the uncertainties
\nin the industry.<\/p>\n
Pertamina itself was officially turned into a limited
\nliability company in August. This means the company will be
\ntreated like other oil and gas contractor and no longer receive
\nprivileges as it did in the past. But, the firm has demanded it
\nbe freed of its social mission, such as providing cheap fuel to
\nthe public, to ease its financial burdens.<\/p>\n
Widjajono, however, said some uncertainties were natural as
\nthe country was in transition from one system to another.<\/p>\n
Whether or not Indonesia would succeed in liberalizing the
\nmarket, Widjajono said, would depend on the government's efforts
\nto boost healthy competition.<\/p>\n
\"With less collusion and corruption, and by implementing good
\ngovernance, healthy competition can be created as in many
\ndeveloped countries,\" he said.<\/p>\n
Widjajono suggested the government should sell natural gas for
\ndomestic use as a source of clean and cheap energy for industry
\nwhile only selling oil for export to obtain greater revenues.<\/p>",
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