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Indonesia needs to hone energy reform strategy
The government needs to show upstream investors that it has a handle on oil and gas reform, less they lose faith and look elsewhere for opportunities
COMMENTARY
WHAT:
Indonesian President Joko Widodo’s second term may fail to deliver decisive energy reforms.
WHY:
The government
wants to tighten its upstream control as well as increase foreign spending.
WHAT NEXT:
Jakarta risks becoming bogged down in bureaucratic delays over the new laws.
INDONESIAN President Joko Widodo began his second term in office last month, forming a new coalition government that expanded to include former opposition party Gerindra. While the president’s focus remains on spurring economic growth and development, entrenched interests among his coalition partners may hin- der the fulfilment of these goals.
For the upstream, this is likely to see a somewhat scattered approach to reforms as Widodo tries to balance his desire and that of those around him to introduce greater resource nationalism against the reality of declining oil and gas production.
Indonesian crude output has almost halved from a peak of 1.67mn barrels per day in 1991 to 808,000 bpd in 2018, according to BP’s Statistical Review of World Energy 2019. Gas production, meanwhile, has fallen from a peak of 87bn cubic metres in 2010 to 73.2 bcm in 2018.
Indonesia’s crude lifting in the first nine months of this year amounted to 745,000 bpd, upstream regulator SKK Migas’ deputy chief, Jaffee Arizon Suardin, said on October 24. This was short of the government’s lifting target of 775,000 bpd.
This means there is mounting pressure on the government to do more to encourage upstream
investment even as resource nationalist policies undermine foreign companies’ confidence in the economy.
Reform ambitions
The government is planning revisions of its oil and gas laws that were passed in 2001. A par- liamentary committee submitted a new law in December 2018 and Widodo met with his senior cabinet members in January to respond to the proposals.
Widodo said the revisions should pave the way for oil and gas reforms that make the sector more efficient, transparent, straightforward and sustainable while adding value to the national economy.
“The aim of this revision must not only be to push to increase oil and gas production, but also to support the strengthening of national capacities, strengthening domestic industries and investment in our human resources in the oil and gas industry,” a statement posted on the Cabinet secretary’s website read at the time.
Among the changes proposed was the creation of a new upstream body that would serve not just as the country’s upstream and downstream regulator, replacing SKKMigas and BPHMigas respectively, but would also develop the country’s oil and gas
2,000 1,800 1,600 1,400 1,200 1,000
800 600 400 200
0
2012 2013
2014 2015 2016 2017 2018
Indonesia's oil deficit
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Production Consumption
Data: BP
P6
w w w . N E W S B A S E . c o m Week 45 06•November•2019
,000 bpd