Blog Indonesia’s New Law to Take Years to Reverse Oil and Gas Output Slump

Indonesia’s New Law to Take Years to Reverse Oil and Gas Output Slump

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Indonesia’s oil and gas output is expected to contract for a fourth consecutive year in 2020, as aging fields and delays to new projects keep production levels below government targets, analysts said.
The output decline comes as Jakarta proposes a new law and aims to set up a special state vehicle aimed at reducing red tape and attracting foreign investment into the industry.
Details on the new initiatives remain scant but analysts said it could take years to boost energy exploration and production in Southeast Asia’s largest economy.
Indonesia’s crude oil output has been declining for years, from a peak of more than 1.5 million barrels per day (bpd) in the mid-1990s to below 800,000 bpd now as key fields run dry.
Oil output in 2019 was 3.7% below target while gas output dropped 15.2% below target due to field curtailments, pipe leaks and dozens of unplanned field shutdowns, according to SKK Migas.
“We are forecasting a 6% decline in liquids, and a 2% drop in gas output for 2020,” said Andrew Harwood, Wood Mackenzie’s research director for upstream oil and gas in Asia Pacific.
“Any increase from new projects will be offset by declines at Chevron’s Rokan PSC, Pertamina’s Mahakam block, and Pertamina’s wider operations across Java and Sumatra.”
Pertamina will take over the Rokan block from Chevron next year, but Indonesia’s oil production “will continue to decline until Pertamina drills further on the block,” Rystad Energy analyst Prateek Pandey said.
“Given this lacklustre outlook, it is imperative for Indonesia’s oil and gas production that Pertamina reduces sanctioning hurdles that have long delayed many of its projects, and implements advanced enhanced oil recovery technology on its mature fields,” he said.
The only promising project commencing operations this year is Eni’s Merakes gas development, which analysts say may reach 60,000 barrels of oil equivalent production per day once at full capacity – deemed at least a year away.
Even if the new is passed, any revival in output may take years to materialise due to lingering investor worries about Indonesian resource nationalism.
“I don’t know what’s going to happen in five years from now, or three years from now when the campaign for the next presidential elections kicks off again,” Harwood said.
“If there’s a move again for a more nationalist sentiment, then all bets are off for international investors.”