Indonesia Temporarily Freezes OPEC Membership

    Indonesia decided to temporarily suspend membership in the Organization of the Petroleum Exporting Countries (OPEC). The decision was taken at OPEC's 171st Session in Vienna, Austria, Wednesday (30/11). 

    Energy and Mineral Resources (ESDM) Minister Ignasius Jonan said the freezing step was taken after the court's decision to cut crude oil production by 1.2 million barrels per day, excluding condensate. The session also asked Indonesia to cut about 5 percent of its production or around 37 thousand barrels per day.

    Even though the need for state revenue is still large and in the 2017 Draft State Budget it is agreed that oil production in 2017 will decrease by 5 thousand barrels compared to 2016, "said Jonan.

    Thus, the cut that Indonesia can accept is 5 thousand barrels per day. Jonan added that as a net oil importer country, this production capacity cut is not profitable for Indonesia, because the oil price will theoretically rise. With this membership suspension, Indonesia has twice frozen its membership in OPEC. The first freeze was in 2008, effective 2009.

    Indonesia decided to return to being active as a member of OPEC in early 2016. This temporary suspension is the best decision for all OPEC members. Because thus the decision to cut 1.2 million barrels per day can be carried out, and on the other hand Indonesia is not bound by the decisions taken, in line with Indonesia's national interests. Member of Commission VII of the House of Representatives (DPR) Kurtubi, supports the government's move to temporarily suspend membership in OPEC.

    This policy reflects the current condition of Indonesia. The government does not want to reduce lifting. Kurtubi said that Indonesia's crude oil production trend has never been achieved. This is due to the lack of exploration activities as well as mature domestic oil wells. 

    He said that without a decision to cut production at the OPEC session, Indonesia's oil production actually decreased from year to year. Without being told to reduce the production target, it is difficult to achieve because our production trend is down.

    He said that the temporary suspension of status did not mean that Indonesia would leave OPEC's membership. That way Indonesia can still cooperate with OPEC member countries.

    The Executive Director of the ReforMiner Institute, Komaidi Notonegoro, added that cutting or increasing oil production is one of the policies commonly carried out by OPEC. Indonesia must be careful in responding to this policy. He said the decision to freeze membership was a natural gesture.

    Komaidi said that his party has not seen the benefits of Indonesia's membership in OPEC. He said the benefits of being a member were limited to price information. According to him, the temporary suspension of status is not detrimental to Indonesia. This is because Indonesia can still cooperate with oil-producing countries outside of OPEC's membership, such as Russia and the United States. A country like this must be the concern of Indonesia to obtain oil and gas.

    Energy observer from Trisakti University Pri Agung Rakhmanto said the suspension of membership status allowed Indonesia to concentrate more on fixing oil and gas management in Indonesia. The government will often face OPEC decisions that differ from Indonesia's interests. He explained that OPEC's decision to cut oil production currently differs from Indonesia's interests, which in fact have to increase production to sustain state revenues.

    Pri Agung said that the membership suspension will have little effect on the downstream oil sector. This means that it can reduce direct access and cooperation with OPEC members in the procurement or import of crude oil and fuel oil (BBM) and the construction of refineries. 

    The domestic oil and gas industry, especially the upstream sector, will have no effect. Meanwhile, world crude oil prices rose about 8 percent in trading Wednesday US time after the major world oil producers who are members of OPEC for the first time since 2008 agreed to cut their crude production in order to raise oil prices which have continued to fall recently.

    This production cut, as quoted by Antara, would put OPEC's oil production below the current level of 33.64 million barrels per day. Non-OPEC country, Russia also agreed to cut oil production to 300,000 barrels per day. OPEC will meet with non-OPEC oil producers on December 9. 

    The West Texas Intermediate benchmark oil price for January delivery rose the US $ 3.93 to the US $ 49.16 per barrel. Meanwhile, the price of Brent oil for shipment in January rose the US $ 3.73 to the US $ 50.11 per barrel, or an increase of 8 percent. February shipments rose 8.8 percent to the US $ 51.48 per barrel. Kuwait, Venezuela, and Algeria agreed to monitor compliance with the OPEC agreement.

Investor Daily, Page-9, Friday, Dec 2, 2016

Lower Gas Prices Boost Petrochemical Growth

    The decline in gas prices is estimated to increase the growth of the petrochemical industry to 5.2 percent next year, compared to this year's projection of 5 percent. The decline in gas prices will reduce the selling price of petrochemical products by up to 5%, thereby increasing competitiveness. The decline in gas prices as a raw material is expected to encourage the petrochemical industry to expand on a large scale. A number of companies that intend to build a methanol plant will realize the investment plan.

    For example, currently, as many as two companies each from Germany and Japan are interested in building a petrochemical plant with a total investment of US$ 2 billion in Maluku. They plan to utilize the Masela Block liquefied natural gas (LNG). Apart from this, the petrochemical project in Bintuni Bay, West Papua, has the potential to be realized.

One of the investors in this area is LG Chemical, which plans to build a methanol plant with an investment of US$ 1.2 billion. Methanol can be processed into olefin products, ethylene, and propylene, to be further processed into polymer products, polypropylene (PP), and polyethylene (PE).

    PP and PE are plastics raw materials that are widely used. Currently, olefins in Indonesia are produced from the processing of naphtha, a derivative product of crude oil.

    Secretary-General of the Indonesian Association of Aromatic Olefins and Plastics (Inaplas) Fajar Budiono said that petrochemicals are the industry most ready to enjoy a decline in gas prices starting in early 2017. The price of gas as an energy source is planned to be set at US$ 6 per MMBtu at the plant gate. The price of gas as a raw material is expected not to exceed US$ 4 per MMBtu.

    He added that if the gas price was more than that number, the industry would have to recalculate. This price is the maximum price so that the industry can compete. He emphasized that if the gas price is below US$ 4 per MMBtu, the petrochemical industry can be developed in Bintuni Bay and Masela or in accordance with the Ministry of Industry's plan. That way, the petrochemical industry has the opportunity to develop methanol which can be processed into olefin and polymer products. Later more investors will develop methanol.

    Because, currently, a lot of methanol is still imported. By strengthening the methanol derivative industry, he emphasized, the industry could be more resilient from price fluctuations and changes in economic assumptions. Industry considerations at this time, he stated, the industry has two considerations in developing methanol to polymer products if it is built-in Bintuni Papua or in Masela in Maluku, the logistics price will be very expensive.

    For this reason, it is necessary to support the operation of the sea highway. If in the next four years the infrastructure is not ready, the factory will be built in Java. According to Fajar, the industry will see which one is cheaper, especially for the next four years. Ideally, the industry has a capacity of 450 thousand tons of olefin, so that it can be reduced to a polymer factory, namely 1.15 million tons of PP per year.

    Fajar assesses that this amount alone is not sufficient to meet the needs in Indonesia, which is estimated to reach 1.6-1.7 million tons in the next four years. Previously, Coordinating Minister for Maritime Affairs Luhut Binsar Panjaitan stated that the reduction in gas prices would be prioritized for three industries, namely fertilizers, petrochemicals, and steel. 

    The government will subsidize the three sectors to get cheap gas prices. Minister of Energy and Mineral Resources (ESDM) Ignasius Jonan stated that the gas price for the three industrial sub-sectors is a maximum of US$ 6 per MMBtu.

Investor Daily, Page-8, Friday, Nov 18, 2016

Revision of Oil and Gas Law Requested to be Accelerated

Industrialists await the birth of a revision of Law No. 22 of 2009 concerning Oil and Gas (UU Migas). The slow completion of the revised regulation is considered to have worsened the oil and gas investment climate, which is currently in crisis.

He admitted that the oil price which had reached below US$ 30 per barrel was a major blow to the upstream oil and gas industry, as well as the supporting industries. His party hopes that the House of Representatives (DPR) as the initiator and the government take quick steps in completing the revision of the Oil and Gas Law which is included in the National Legislation Program. The Indonesian Chamber of Commerce (Kadin) also hopes that the role of the private sector will be strengthened as a strategic partner of the government.

Regarding the aspect of oil and gas governance, Kadin requested that there be special rules that ensure the availability and development of infrastructure so that the distribution is evenly distributed. Moreover, in 2030, gas is predicted to make a major contribution to industrial development. The high price of gas makes production costs higher so that it suppresses competitiveness.

Deputy Minister of Energy and Mineral Resources (ESDM) Arcandra Tahar did not deny that upstream oil and gas activities in recent years were at their lowest point, Indonesia was in the bottom 15 of the 120 countries where oil and gas investment is located, which means that the domestic investment climate is not conducive. Member of the Indonesian House of Representatives Commission VII Satya Widya Yudha said the discussion on the revision of the Oil and Gas Law was expected to be completed in early 2017.

Media Indonesia, Page-17, Wednesday, Nov 2, 2016

Upstream Gas Price Can Be US$ 3.82 Per MMBTU

The Ministry of Energy and Mineral Resources (ESDM) stated that gas prices could drop to US$ 3.82 per MMBtu if the state did not take non-tax state revenues (PNBP) and income taxes (PPh) from gas trading. Malaysia has done this so that gas prices can come down to the consumer level.

The Directorate-General for Oil and Gas at the Ministry of Energy and Mineral Resources, I Gusti Nyoman Wiratmaja Puja, explained that there are two types of gas prices, namely the share of the revenue for the Cooperation Contract Contractors (KKKS) and the share for the state.

For the KKKS part, we must respect the applicable contract. According to him, the most flexible to be reduced is the share for the state. Namely, from PPh and PNBP, they only ask for approval from the Coordinating Ministry for the Economy. 

This method can reduce the gas price which is currently US$ 10 per MMBTU for end users. However, state revenues can also drop drastically. Malaysia has used that method, not taking part of the state. If the government does not take PNBP, the price of piped gas upstream could be US$ 5.01 per MMBtu.

But the state lost revenues of up to US$ 544 million or Rp. 7 per year (exchange rate of Rp. 13,000 per US dollar). If the state does not take all of the state's share including PPh, the gas price upstream will be US$ 3.82 per MMBtu. However, the government must lose US$ 1.26 billion or around Rp. 16.4 trillion per year. But there is another way, namely to reduce transmission and distribution costs by US$ 2.4 per MMBtu.

Kontan, Page-14, Tuesday, Oct 25, 2016

The Downstream Oil and Gas Sector is Arranged, the Upstream Sector is Still Constrained

    It has been five years since President Joko Widodo or Jokowi and Vice-President Ma'ruf Amin have ruled. In those five years, several policies in the energy and mineral sector were issued. One of the striking policies is the policy of removing subsidies for fuel oil (BBM).

President Joko Widodo

    Jokowi from the beginning of his reign had wanted to revoke the fuel subsidy, which the previous administration could not do, namely the Era of President Susilo Bambang Yudhoyono. Therefore, IGN Wiratmaja Puja, Director General of Oil and Gas at the Ministry of Energy and Mineral Resources (ESDM) said that the policy of removing subsidies was the Jokowi administration's most successful program. 

ESDM

    

    Understandably, the policy on fuel subsidies is sensitive and has generated a lot of controversy in the previous era, namely the era of President Susilo Bambang Yudhoyono.

"The significant reduction in subsidies was carried out without any turmoil, and the economy continues to grow," said Wiratmaja some time ago.

    Jokowi's second program that is considered useful in the oil and gas sector is gas infrastructure development. In the Jokowi era, the construction of household gas networks (Jargas) and the construction of LPG refineries began with a 15-year investment of US $ 48.2 billion.

"It used to be hampered, now we already have a program and the construction is very fast. Energy utilization has also moved fast," said Wiratmaja.

    In addition to this policy, recently President Jokowi also announced a single price for BBM throughout Indonesia, whose program began in Papua. Besides, the government has also spread LPG to a wider community with a converter kit program for fishermen. Unfortunately, several good policies in the downstream oil and gas sector are not accompanied by good achievements in the upstream sector.

Blogger Agus Purnomo in SKK Migas

    Wiratmaja explained that until now the upstream oil and gas sector has not moved quickly because oil prices have fallen. This is reflected in the continuing decline in oil production. SKK Migas stated that last year's oil lifting was only 8230,000 barrels of oil per day (bopd) and this year it is only targeted to reach 820,000 bopd.

    Until mid-October 2016, the average oil production only reached 834,600 BPD, and gas reached 6,900 mmscfd.

"We hope that the lifting by the end of the year will be up to 820,000 BPD", said Taslim Yunus, Head of Public Relations of SKK Migas.

    Taslim also said, with the current decline in oil prices, the state revenue from the oil and gas sector was not optimal. The target oil price in the 2016 Revised State Budget (APBNP) is the US $ 40 per barrel. The average oil price is still at the US $ 38 per barrel. Wiratmaja admitted that the oil and gas sector regulations were not yet conducive for the upstream oil and gas industry. On the other hand, licensing of the upstream oil and gas sector has been trimmed from 146 permits, so far only six permits are sufficient.

    Apart from the matter of policy, Satya Widya Yudha, a Commission VII DPR RI member, said that Jokowi's policy to disband Petral, a subsidiary of Pertamina, also deserves appreciation. Satya assessed that Jokowi's implementation of policies in the oil and gas sector has not been optimal, such as the BBM to gas fuel (BBG) conversion program. This problem cannot be separated from the distribution of domestic gas which is constrained by the lack of infrastructure. As a result, a lot of gas is still being exported.

Kontan, Page-14, Monday, Oct 24, 2016

The development of the Masela Block is limited to correspondence

    It has been six months since President Joko Widodo changed the development of the Masela Block, from the original offshore LNG plant scheme to an onshore refinery. However, the Masela Block development plan still revolves around the revision of the plan of development (POD). 

Inpex Corporation

In the latest news, the Ministry of Energy and Mineral Resources (ESDM) sent a reply letter to Inpex Corporation.

"Later Mr. Jaffee Suardin, the Special Staff of the Deputy Minister of Energy and Mineral Resources, will explain," Deputy Minister of Energy and Mineral Resources, Archandra Tahar, was reluctant to reveal the contents of the government's reply letter.

    According to information, the government's reply letter dated October 13, 2016, was signed by the Coordinating Minister for Maritime Affairs as well as the then Acting Minister of Energy and Mineral Resources, Luhut Binsar Pandjaitan.

Luhut Binsar Pandjaitan

    The government has not agreed on a single point put forward by Inpex Corporation. The government said that it still needs time to review and discuss the five points of Inpex's request.

    The five points of Inpex's request are an increase in the LNG refinery capacity from 7.5 MTPA to 9.5 MTPA, a 10-year contract moratorium, an internal rate of return (IRR) of 15%. Two other points, the matter of cost recovery during the exploration period and government licensing. The government is still targeting the Inpex Corporation POD submission to take place this year. We are trying to be as fast as possible.

Kontan, Page-14, Monday, Oct 24, 2016

2017-2018, Indonesia LNG Excess Supply

The government stated that the supply of Liquefied Natural Gas / LNG in 2017-2018 will still be in excess or above national needs. The government noted that there was respectively an excess of LNG supplies of around 60 cargoes in 2017 and 2018.

Energy and Mineral Resources (ESDM)

Director-General of Oil and Gas at the Ministry of Energy and Mineral Resources (ESDM) I Gusti Nyoman Wiratmaja said that in 2017, there was an excess supply of LNG totaling 63 cargoes. Meanwhile, the excess supply of LNG in 2018 is predicted to increase, namely above 60 cargoes. 

    Excess supply occurred at the Badak LNG Plant in Bontang, East Kalimantan, and the Tangguh Refinery in Bintuni Bay, Papua. The government is negotiating the sale of 13 LNG cargoes for next year's allocation. Meanwhile, for the rest, the government is still looking for buyers.

"We want this to be sold to existing buyers. According to Wiratmaja, this excess LNG supply is not because the gas production sent to the refineries is too high. Gas production remains as planned. However, the government has not been able to find buyers willing to take the LNG. On the other hand, the government does not want to cut gas production upstream. He added that the excess supply has calculated the growth in demand for LNG for lyric power plants in the next two years.

Although, he admitted that the infrastructure for LNG recipients is still in the auction stage. Thus, this excess supply of LNG occurs purely because it cannot be absorbed domestically. With this excess supply, his party will not grant LNG import permits in 2017 and 2018. Import permits will likely begin to be granted by the government in 2019.

Previously, Vice President of LNG of PT Pertamina (Persero) Didik Sasongko said the company had prepared steps to anticipate a gas deficit of 1.5 billion cubic feet per day / BCFD in 2020. Pertamina has committed to supply LNG from other countries that can be brought to Indonesia. starting 2019.

"Like it or not, we will meet approximately 50% of the volume gap in production and gas demand," he said.

Cheniere Energy Inc

Pertamina has pressed a gas sale and purchase agreement (PJBG) with a subsidiary of Cheniere Energy Inc, namely Corpus Christi Liquefaction Liability Company with a volume of 0.76 million tons per year. The supply started in 2019 for 20 years. In addition, Pertamina has also contracted with Cheniere Energy with the same volume but started in 2018.

This supply will also last for 20 years. Not only that, Pertamina already has a commitment to supply 1.5 million tons per year from the world portfolio starting 2020. Pertamina has not received an LNG import permit. The government must have its own considerations. If it is simultaneously importing, it will close domestic gas production, ”said Didik.

But he is sure, in 2019, the gas supply he has prepared will be purchased by domestic buyers.

Investor Daily, Page-9, Saturday, Oct 22, 2016

Pertamina's Split Value 40% Is Very Economical

    PT Pertamina and consortium members, Exxon Mobil and PTT Thailand, are still evaluating the government's 40% split offer. However, Pertamina considered the offer to be very economical.

Exxon Mobil

    Pertamina Upstream Director Syamsu Alam said that his party and consortium members are still evaluating the offer and plans for developing the East Natuna Block. 

the East Natuna Block

    Moreover, to date, not all members have submitted proposals regarding the terms and conditions for the East Natuna Block contract. Pertamina and the consortium have not been able to agree on the terms and conditions offered by the government.

"From Pertamina's evaluation, this figure may still be economical, but only for the AR structure, while the AP structure awaits the results of TMR (technology and market review).

    Syamsu explained that the evaluation took a very long time because the East Natuna Block development was carried out in stages. According to the plan, in the first phase, the development of the block on the Indonesian border will start from the work on the AP structure which has the dominant oil reserves. In the next stage, a gas-dominant AP structure with a carbon dioxide content of 72% will be worked out.

    Syamsu once revealed that oil production in the East Natuna Block could be done faster than gas. This is because oil development does not need to determine who the buyers are and the method of transportation, as in the gas business. 

    He admitted that gas development took a very long time because Pertamina had to ensure that it was commercialized. So if you want to have activity in Natuna immediately and withdraw other oil and gas blocks to be active immediately, that can be done by developing oil first.

    Moreover, the development of oil from oil and gas blocks in Natuna can later be carried out in an integrated manner. Currently, Pertamina and partners are working on a technology and market review / TMR for gas block production at the Indonesian border. Later, Fiscal for gas development will be based on the results of TMR which will be completed in 2017.

Energy and Mineral Resources (ESDM

    Previously, the Upstream Director of the Directorate General of Oil and Gas at the Ministry of Energy and Mineral Resources (ESDM) Tunggal revealed that the government had conveyed all the terms and conditions of the East Natuna Block offered to Pertamina and the consortium.

Some of the offers are split and signature bonuses. The split offered can be up to 40% for Pertamina because it is in accordance with the applicable regulations.

"Only Pertamina and the consortium are willing to bid,".

    Not only that, but the government also added a clause that the East Natuna Block production sharing contract / PSC could be revised once the TMR was completed. He said Pertamina partners were currently consulting with their head office regarding the government's offer.

"Exxon Mobil said that at the end of November it gave an answer. The acceleration of the development of the East Natuna Block is the government's desire ".

    Director-General of Oil and Gas of the Ministry of Energy and Mineral Resources I Gusti Nyoman Wiratmaja Puja said that the acceleration of the development of the East Natuna Block was necessary to safeguard Indonesia's sovereignty. This is because there have been attempts by other countries to draw their borders beyond the borders of the archipelago.

    We hope that in the next year it will be able to produce. Wiratmaja hopes that exploration activities can be carried out immediately in the East Natuna Block. Furthermore, this block can immediately produce around 7,000 to 15,000 barrels of oil per day (BPD). Oil reserves in the East Natuna Block are estimated at around 46 million barrels. Meanwhile, its gas reserves are 42 trillion cubic feet.

Investor Daily, Page-9, Thursday, Oct 22, 2016