Indonesia is important to world energy markets because of its OPEC membership and substantial, but diminishing, oil production. Indonesia also is the world's largest liquefied natural gas (LNG) exporter.
The information contained in this report is the best available as of December 2000, and can change.
General Background:
Indonesia is finally making a modest recovery from the economic downturn which followed the Asian financial crisis of 1997-98.
After a decline in real gross domestic product (GDP) of 13.4 percent in 1998, and growth of only 0.2 percent in 1999, Indonesia is projected to finish 2000 with 3.8 percent real GDP growth for the year.
Still, Indonesia's economic decline from the Asian financial crisis was the worst of any of the Asian countries.
With about 75 percent of Indonesian businesses in technical bankruptcy following the country's economic collapse in 1998, the government was forced to turn to the International Monetary Fund (IMF) for an emergency debt-relief package totaling $43 billion.
The IMF recommended that Indonesia implement an economic reform program in order to help save its economy. IMF recommendations included creating greater transparency in the issuing of government loans and subsidies, and stricter enforcemnet of laws and regulations in the area of government procurement.
The government has announced several reform initiatives since receiving the IMF bailout package, including the planned privatization of several sectors of the economy, but progress has been slow.
A follow-on loan package, from several lenders including the United States and the IMF, was approved in October 2000.
In October 1999, a general election resulted in Abdurrahman Wahid becoming president of Indonesia, with promises to reform the country's economy.
Almost immediately, however, the new administration was confronted by a renewed challenge from a separatist movement in Aceh, an oil and gas rich province in north Sumatra which abuts the strategically important Strait of Malacca.
A separatist movement also exists in Irian Jaya, a gas-rich province at the eastern end of the country.
One of the key areas in which energy and politics intersect in Indonesia is the distribution of oil and gas revenues between the central government in Jakarta and regional governments in areas which produce oil and gas.
The current Wahid administration has proposed that the share of revenue given to regional governments be sharply expanded, but oil and gas producing regions are still dissatisfied with the revenues they receive.
Oil:
Indonesia currently holds proven oil reserves of 5 billion barrels. This represents a 14 percent decline in proven reserves since 1994. Much of Indonesia's proven oil reserve base is located onshore.
Central Sumatra is the country's largest oil producing province and the location of the large Duri and Minas oil fields. Other significant oil field development and production is located in accessible areas such as offshore northwestern Java, East Kalimantan, and the Natuna Sea.
Indonesian crude oil varies widely in quality, with most streams having gravities in the 22o to 37o API range. Indonesia's two main export crudes are Sumatra Light, or Minas, with a 35o API, and the heavier, 22o API Duri crude.
During the first nine months of 2000, Indonesian crude oil production averaged about 1.29 million barrels per day (bbl/d). Crude oil production had ranged between 1.3 and 1.4 million bbl/d between 1990 and 1999.
The decrease in 2000 was due mainly to the natural decline of aging oil fields. Although Indonesia's OPEC oil production quotas were raised repeatedly in 2000, Indonesia's production did not show a corresponding increase.
Besides crude, Indonesia also produces approximately 180,000 bbl/d of natural gas liquids and lease condensate, which are not part of its OPEC quota, bringing the country's total oil production to around 1.47 million bbl/d.
Indonesia is the only Southeast Asian member of OPEC, and its current OPEC crude oil production quota is 1.385 million bbl/d.
Indonesia's recent oil production has remained relatively flat as introduction of crude streams from new, smaller fields has helped compensate for declines at many of the country's mature oil fields.
To meet its goal of increasing production, Indonesia has stepped up efforts to sign new oil exploration contracts. Seven new production sharing contracts (PSCs) were awarded in May 2000, up from only four in the 1999 bidding round.
The majority of Indonesia's producing oil fields are located in the central and western sections of the country. Therefore, the focus of new exploration has been on frontier regions, particularly in eastern Indonesia.
Sizable, but as of yet unproven, reserves may lie in the numerous, geologically complex, pre-tertiary basins located in eastern Indonesia.
These regions are much more remote and the terrain more difficult to explore than areas of western and central Indonesia.
Companies producing from existing fields are investing in programs to increase recovery rates and to prolong the life of the fields.
Caltex, which has the largest operation of any multinational oil company in Indonesia, is undertaking a steam injection project at the Duri field on Sumatra.
Oil Sector Reforms:
The liberalization of Indonesia's downstream oil and gas sector has been under discussion for several years.
Broadly speaking, measures under consideration center on the termination of state oil giant Pertamina's monopoly, and the reduction and eventual elimination of subsidies on domestic oil consumption.
Pertamina plans to undertake a restructuring and downsizing program, including a decline of 8,000 in its total workforce, in hopes of becoming competitive enough to survive over the long-term in a deregulated industry.
Under legislation currently pending before Indonesia's legislature, Indonesia's Ministry of Mines and Energy would take over the function, currently carried out by Pertamina, of awarding and supervising production sharing contracts with foreign oil companies.
Foreign firms also would be freed from many of the regulatory approval requirements which they argue hinder their efficiency.
Eventually, Indonesia's downstream sector would be opened to foreign competition, a move intended to relieve the Indonesian government of the burden of its heavy subsidies to Pertamina.
Similar reform legislation proposed in 1999, however, was defeated in parliament. The new Minister of Mines and Energy (appointed in August 2000), Purnomo Yusgiantoro, has pledged to press ahead with the legislation.
Refining:
Indonesia has eight refineries, with a combined capacity of 992,745 bbl/d. The largest refineries are the 348,000-bbl/d Cilacap in Central Java, the 241,000-bbl/d Balikpapan in Kalimantan, and the 125,000-bbl/d Balongan, in Java. A major expansion of the Cilacap refinery was completed in 1999.
One new project currently under consideration is a 300,000-bbl/d Saudi Arabian-Chinese-Indonesian joint venture refinery planned for Pare-Pare in South Sulawesi.
This would be an export-oriented refinery, taking Saudi crude and refining it for sale primarily to the Chinese market. If financing is arranged, construction on the project could begin by the end of 2001.
Natural Gas:
Indonesia has proven natural gas reserves of 72.3 trillion cubic feet (Tcf). Most of the country's gas reserves are located near the Arun field in North Sumatra, around the Badak field in East Kalimantan, in smaller fields offshore Java, the Kangean Block offshore East Java, a number of blocks in Irian Jaya, and the Natuna D-Alpha field, the largest in Southeast Asia.
Despite its significant gas reserves and its position as the world's largest exporter of liquefied natural gas (LNG), Indonesia still relies on oil to supply about 50% of its energy needs.
As Indonesia's oil production has leveled off in recent years, the country has tried to shift towards using its natural gas resources for power generation.
However, the domestic gas market is still considered immature and the country lacks a domestic network and pipeline infrastructure to provide widespread distribution.
A particularly significant Indonesian gas field, Natuna, is located in the South China Sea, 683 miles north of Jakarta and 140 miles northeast of Natuna Island.
Discovered in 1970 by Italy's Agip, the field contains an estimated 46 Tcf of recoverable reserves. Agip relinquished its concession, however, and the field has been developed only recently.
In January 1999, SembGas of Singapore signed a contract to purchase 325 million cubic feet per day (Mmcfd) of natural gas from the West Natuna Gas Consortium, a joint venture consisting of Pertamina, Conoco, Premier Oil, and Gulf Indonesia Resources.
A contract for the pipeline was awarded to McDermott International, and it is expected to be completed ahead of schedule in January 2001. In November 1999, Conoco reported a new gas discovery at West Natuna which raised reserves by about 1 Tcf.
Besides exports to Singapore, another ambitious project which has been under discussion would involve linking gas grids from Thailand to China via an offshore pipeline heading in both directions from a hub at the Natuna gas field. Such a scheme might eventually allow the export of southeast Asian gas to China.
A less ambitious version of the project might involve only Indonesia and China.Another major project in the planning stages is ARCO's Tangguh LNG project in Irian Jaya, based on over 14 Tcf of natural gas reserves found onshore and offshore the Wiriagar and Berau blocks.
The project would involve two trains with a combined capacity of 6 million tons per year. A contract for the initial engineering and design work had been awardeed to Chiyoda and Misubishi of Japan.
The project is considered risky due to an active separatist movement in Irian Jaya. Arco holds a 48 percent interest in the Berau block with partners Occidental Berau of Indonesia Inc. at 22.87 percent, Nippon Oil Exploration, 17.14 percent and KG Berau Petroleum, 12 percent.
For the Wiriagar block, Arco holds an 80 percent interest and KG Wiriagar Petroleum Ltd. holds the remaining 20 percent.
Another LNG project recently completed is construction of an eighth LNG train at the Bontang LNG plant in East Kalimatan, which became operational in December 1999.
The train added 3 million tons per year to the capacity at Bontang. Development of new LNG capacity in the coming decade is a critical issue for Indonesia, as the Aceh LNG facility is showing declining capcity as the fields which supply it become mature. Two LNG trains at Arun were closed in April 2000.
In another possible use for Indonesia's gas resources, Shell is examining the possibility of building a gas-to-liquids (GTL) plant in Indonesia.
The plant, if the project goes forward, would produce 70,000 bbl/d of diesel and other middle distillates using the Fischer-Tropsch GTL process.
Coal:
Indonesia has 5.75 billion short tons of recoverable coal reserves, of which 85 percent is lignite and 15 percent is anthracite.
Sumatra contains roughly two-thirds of Indonesia's total coal reserves, with the balance located in Kalimantan, West Java, and Sulawesi.
In 1998, Indonesia exported 51.1 million short tons (Mmst), or about 77 percent of its coal production. The majority of these exports are destined for Japan, South Korea, and Taiwan.
Indonesia plans to double coal production over the next five years, mostly for exports to other countries in East Asia and India. The new capacity will come primarily from private mines.
The Clough Group of Australia was awarded a $215-million contract for improvements at the Indonesian firm GBP's Kutai mine in East Kalimatan. Another foreign firm with major interests in Indonesian coal mining is Australia's Broken Hill Proprietary (BHP).
Electricity Generation:
Indonesia has installed electrical generating capacity estimated at 19.9 gigawatts, with 82 percent coming from thermal (oil, gas, and coal) sources, 15 percent from hydropower, and 3 percent from geothermal.
Prior to the Asian financial crisis, Indonesia had plans for a rapid expansion of power generation, based mainly on opening up Indonesia's power market to Independent Power Producers (IPPs).
The crisis led to severe financial strains on state-utility Perusahaan Listrik Negara (PLN), which made it difficult to pay for all of the power for which it had signed contracts with IPPs.
Due both to overestimation of demand and to a decline in demand attributable to the Asian financial crisis, PLN has an overcapacity on the main Java-Bali power grid of nearly 50 percent.
PLN has over $5 billion in debt, which has grown markedly in terms of local currency due to the decline in the value of the rupiah. The Indonesian government has been unwilling to take over the commercial debts of PLN.
The first major IPP to be completed was the Paiton I project, a 1,230 megawatt (MW) coal-fired plant, which cost $2.5 billion.
Paiton I was completed in early 1999 by a consortium including Edison Mission Energy, General Electric, and Mitsui. Sufficient demand for power from the plant did not exist when it was completed, however, and the plant was not activated.
Paiton I's owners complained that PLN failed to pay the "capacity charge" due under the contract in the event that PLN fails to buy power from the plant during a particular period.
In October 1999, PLN filed suit against Paiton, seeking to void its contract on the grounds of alleged improprieties under the Suharto regime.
Paiton has denied the charges, and the Indonesian government stepped in to order PLN to drop the suit in December 1999, fearing a general loss of foreign investor confidence if such a large obligation were cancelled.
After lengthy negotiations, the Paiton consortium and PLN agreed in November 2000 on a settlement which includes tarriff adjustment and a long-term payment scheme.
PLN also has plans to cancel some contracts with IPPs which have yet to make significant progress on their projects.
The company is currently undertaking a study of which projects should be continued. Thus far, IPPs with a combined capacity of 6,500 MW have been completed, while projects with a combined capacity of 15,000 MW have been delayed or cancelled.
Some of the foreign investors backing IPPs in Indonesia already have abandoned projects, such as the 1,320 MW Tanjung Jati-B thermal plant in central Java, on which construction was halted in 1998. PLN is negotiating to buy the facility from its owners, Australian Hopewell Holdings and a local Indonesian firm.
All of the other IPP projects are facing similar problems. It is likely that some will be bought out and others will opt to renegotiate their power purchase contracts.
Former Minister of Energy and Mines Kuntoro Mangkusubroto was named to head PLN on January 11, 1999.
He has said that PLN will honor its contracts, but will insist on a renegotiation of rates. Given the overcapacity in the Indonesian power sector, further investment in new IPPs is unlikely in the next several years.
Indonesia's earlier plans to develop nuclear power also are unlikely to be implemented in the near term.
Environment:
Indonesia's major environmental challenges involve supporting its large population. Air and water pollution have reached critical levels, especially on the most populated island of Java.
Indonesia's carbon emissions remain low, but there is concern that an increase in the use of indigenous coal will increase Indonesia's carbon emissions in the coming years.
Indonesia is well endowed with renewable energy potential, especially geothermal energy. Indonesia's renewable resouces are not yet fully exploited.
Oil and Gas Industries:
Organizations: Perusahaan Pertambangan Minyak dan Gas Bumi Negara (Pertamina) - oil exploration, production, transportation, and marketing; Perum Gas Negara (PGN) -gas distributor and transmission company
Major Producing Oil Fields: Duri, Minas, Belida, Ardjuna, Arun, KG/KRA, Widuri, Nilam, Attaka
Oil Refineries (operating capacity-bbl/d, December 1999): Cilacap, Central Java (380,000); Pertamina-Balikpapan, Kalimantan (240,920); Musi, South Sumatra (109,155); EXOR-1, Balongan, Java (125,000); Dumai, Central Sumatra (114,000); Sungai Pakning, Central Sumatra (47,500); Pangakalan Brandan, North Sumatra (4,750); Cepu, Central Java (3,420)
Product Pipelines: Trans-Java (serving the Surabaya market)
Oil Tanker Terminals: Java: Cilegon, Cilacap, Surabaya, Ardjuna B (offshore) Sumatra: Pangkalan Brandan, Belawan, Dumai, Musi, Perlak, Palembang, Tanjung Uban (offshore) Kalimantan: Balikpapan Sulawesi: Ujung Pandang Irian Jaya: Sorong, Jaya Seram: Bula Natuna Sea: Ikan Pari
Major Gas Fields: Sumatra: Arun, Alur Siwah, Kuala Langsa, Musi, South Lho Sukon, Wampu East Kalimantan: Attaka, Badak, Bekapai, Handil, Mutiara, Nilam, Semberah, Tunu Natuna Sea: Natuna Java: Pagerungan, Terang/Sirasun Irian Jaya: Tangguh
Major Gas Pipelines: Sumatra: Pangkalan Brandan-Dumai
LNG Plants: Arun, Bontang
Source:United States Energy Information Administration.
© 2001 Mena Report (www.menareport.com)
