Government urged to promote gas usage
JAKARTA (JP): A major energy company called on the government on Thursday to promote the use of natural gas domestically and offer bigger incentives for oil and gas exploration in order to avoid becoming a net oil importer in the near future.
President and resident manager of Atlantic Richfield Indonesia Inc. (ARII), a subsidiary of the giant United States energy company Atlantic Richfield Company (ARCO), Leon Codron, said the country's oil production had remained stagnant at the rate of 1.5 million barrels per day over many years due to the lack of new oil discoveries while the country's oil demand had continued to increase.
He said the country would become a net oil importer in the near future unless the government quickly promotes the use of natural gas, which the country has in abundance, as an alternative source of energy and encourages oil and gas contractors to increase oil exploration.
Codron noted that some half a billion barrels of proven oil reserves in Indonesia are sitting in fields currently too small for viable economic development.
"Economic incentives in the form of interest-cost recovery on unrecovered capital, investment credits, and domestic holidays on oil are needed to make investment in these identified oil sources more attractive," Codron said in a discussion during the Indonesian Forum's two-day international seminar.
Codron called on the government to diversify to natural gas, noting that by substituting gas for imported oil-based fuel, the government will save hundreds of millions of dollars annually.
He also called on the government to adopt a transparent domestic natural gas pricing policy.
He said currently natural gas prices are set by the government, but there is no formula or established pricing policy for investors to calculate the risk-reward ratio.
He also called on the government to assist oil and gas contractors to market liquefied natural gas (LNG) in overseas markets in view of the ever tighter competition in the LNG market in the Asia Pacific region.
Codron hailed the government's plan to minimize state interference in the procurement of goods and services by oil and gas mining contractors.
Oil and gas contractors have long complained about the tight bureaucratic supervision in their procurement of goods and services.
Minister of Mines and Energy Kuntoro Mangkusubroto recently promised to ease that bureaucratic supervision.
Codron also praised the government's current plan to deregulate the oil and gas downstream sector by removing the sectoral monopoly of the state oil and gas company Pertamina.
The deregulation on the downstream oil and gas sector is one of several main goals of the new oil and gas law being drafted by the government.
Codron reintroduced the long-standing call from the oil and gas companies on the government to allow them to consolidate taxes so that they can deduct the cost of exploration from their total tax bills.
Under the current system, Pertamina will only reimburse the exploration costs spent by contractors for drilling productive wells. Under the consolidated tax scheme, contractors will also recover the exploration costs for drilling unproductive wells.
"Forgive me for bringing this up once again, but this policy has worked everywhere it has been instituted and it has served to rapidly stimulate new exploration activities," Codron said.
Kuntoro had earlier rejected the proposal for the tax consolidation scheme. (jsk)