What Aceh Needs is an Industrial Ecosystem
The debate over the development of the South Andaman Block in recent times has largely centred on the choice of location for production facilities: whether the entire process should be carried out offshore or whether onshore facilities must be built. Yet, from the perspective of economic development, the more important question is not the location of production facilities, but how to secure the greatest possible economic benefit for Aceh and Indonesia.
It is important to emphasise that gas production is not the sole end goal. Rather, gas production is the starting point that enables a range of subsequent economic activities to take place. Without gas successfully extracted from beneath the earth, there would be no raw material for industry, no energy supply for industry, and no opportunity for investment to grow. Therefore, the sooner gas is brought to the surface, the better it is for the economy.
In the upstream oil and gas industry, decisions regarding field development methods take many aspects into account. These range from the characteristics of the reservoir or reserves (oil and gas), development engineering, operational safety, project economics, to market certainty. The choice of development method is a business decision based on techno-economic considerations aimed at ensuring the project produces gas commercially as soon as possible.
The sooner the South Andaman project produces gas, the sooner gas is generated, and the sooner economic benefits begin to flow.
Some time ago, PLN reached an agreement with Mubadala Energy to take a portion of South Andaman gas, amounting to 160 MMSCFD. This is, of course, one of the benefits of gas in generating electricity, which PLN uses to ensure and guarantee electricity supply for the people of Aceh and surrounding areas.
That is only one benefit. There remains approximately 140 MMSCFD of gas that can be utilised to create an industrial ecosystem in Aceh. Experience in various countries, as well as in Indonesia, shows that petrochemical, fertiliser and gas-based manufacturing industries develop after there is certainty of long-term gas production. Therefore, this momentum should be used to begin preparing the industrial ecosystem now.
The central and regional governments can immediately draw up a roadmap for the utilisation of a portion of domestic gas, accelerate the construction of supporting infrastructure, and attract downstream sector investment. Later, when gas production increases, both from South Andaman and from other locations, Aceh will be ready to become a site for various industries that use gas as energy and as raw material.
Such an approach is far more productive than debating solely the location of gas processing facilities. The economic benefit of an oil and gas project is determined by how much economic activity grows throughout the project development cycle and also by how the gas produced is subsequently used to create added value domestically.
Long-term certainty of gas supply is an important and primary factor in investors’ considerations when deciding to build fertiliser, petrochemical, methanol, power generation and various gas-based manufacturing industries. Without stable production, there is no basis for investors to commit capital to long-term projects that require energy and raw material supplies for decades.
In other words, gas production is a prerequisite for the creation of an industrial ecosystem. Thus, industrialisation is not the starting point, but rather an advanced stage built on the foundation of certainty of natural gas production. Therefore, the sooner natural gas production begins, the sooner the government and businesses will have the certainty to design follow-up investments that provide greater added value for the region.
The regional government, together with the central government, can prepare the design, followed by accelerating the construction of energy and logistics infrastructure, formulating policies for the utilisation of a portion of gas for domestic needs in accordance with applicable regulations, and attracting industrial investment capable of creating added value and employment.
Such preparation requires no short amount of time, but it is not too late if it is designed and built immediately in parallel with the gas field development process in the South Andaman Block. It is this kind of approach that will produce more sustainable economic benefits.
Encouraging upstream oil and gas investment is the initial stage. After that, expanding its impact through the growth of derivative industries in the form of an industrial ecosystem is the next stage. Of course, such activity will be followed by increased employment opportunities, the growth of small and medium enterprises, increased regional revenue, and the formation of new economic growth centres.
Natural gas production opens the door to the ‘house’, but industrialisation ‘fills the house’ and expands the economic benefits.
Although upstream oil and gas activities are already underway, we should support them so that production is not delayed. At the same time, the central and regional governments can make this a single upstream-downstream chain by continuing discussions and drawing up an integrated development plan, so that natural resource wealth is truly transformed into productive investment, creating employment opportunities, improving industrial competitiveness, and ultimately supporting the welfare of the people of Aceh in particular and the people of Indonesia in general.