Investment and Regulatory Certainty

KOMPAS/LASTI KURNIA

Workers pump gas from a fuel truck into fuel tanks on Tuesday (14/1/2020) at a Pertamina gas station in Fatmawati, Jakarta. Pertamina has set a 2020 quota per regency/municipality for biodiesel and Premium gasoline volume for regency/city in keeping with a directive from the Downstream Oil and Gas Regulatory Agency (BPH Migas). East Java has been assigned the largest quota of 2,312,234 kiloliters of biodiesel and 1,444,315 kl of Premium, while North Maluku has the smallest quota of 32,583 kl of biodiesel and at 47,145 kl of Premium.

Indonesia must have a sustainable energy policy that it applies consistently if the country wants to achieve its goal of becoming a rich country by 2045.

The availability of energy is a non-negotiable requirement for becoming a developed country. We need to ensure a sustainable and competitive energy supply throughout our search for new and sustainable energy sources.

This newspaper reported on Tuesday (14/1/2020) the increasingly critical condition of our upstream oil and gas sector. Ready-to-sell production (lifting) of the two energy sources has been in decline since 2016. According to the Energy and Mineral Resources Ministry’s data, oil and gas lifting in 2019 respectively produced 746,000 barrels and 1,060 barrels of oil equivalent (BOE) per day, below the targeted 775,000 barrels and 1,250 BOE.

Indonesia still relies heavily on oil, natural gas and coal as its primary energy sources. The National Energy Policy still consists of 75 percent fossil energy sources, with new and renewable energy (NRE; EBT in Indonesian) contributing the remainder. In 2050, the estimated contribution of fossil energy is still 69 percent.

Liquefied natural gas (LPG) consumption is around 7 million tons per year, half of which is imported.

Current oil production is around 800,000 barrels per day, while consumption is 1.5 million barrels. Liquefied natural gas (LPG) consumption is around 7 million tons per year, half of which is imported.

The government continues to reduce the use of fossil energy, especially petroleum-based fuels. Indonesia has become a net importer of crude oil, which has led to a deficit in the oil and gas trade balance. An increasing amount of biofuels, such as palm oil, is being used in diesel oil mixes.

As a crude importer, Indonesia risks fluctuating prices in the global market and supply certainty. US-Iran tensions have made crude oil prices volatile. Fears arose that the tensions would escalate into open war, while a number of parties have called on the two countries to exercise restraint.

KOMPAS/ABDULLAH FIKRI ASHRI

A worker monitors drilling on Tuesday (11/5/2019) at the RDG-059 oil well of PT Pertamina EP Asset 3 at Jatibarang Field in Sumberjaya, Majalengka regency, West Java.

Domestic efforts to increase production by seeking new oil and gas fields have not progressed, because of the government’s 2017 gross split profit-sharing scheme (PSC) in auctioning new oil fields. The scheme aims to provide greater income for the country, but it is not attractive to investors. Indonesia\'s new oil and gas resources are located in more remote areas, so exploration and mining costs are higher.

Now, the government is allowing for more investment under a cost recovery system. The frequent changes in regulation are not suited to attracting capital-intensive and high-risk investments, such as in the oil and gas industry.

Regulatory and contractual certainty is a given if we want to bring in investment to the upstream oil and gas sector. The government also needs to simplify the bureaucracy immediately. This is also necessary to encourage NRE investment, since Indonesia is committed to reducing greenhouse gas emissions that are contributing to climate change.