The upstream oil and gas industry holds an important role as one of the economic drivers in Indonesia, especially for the local communities in the areas where the oil and gas operations are located. This industry creates multiplier effects for other business sectors but unfortunately, the Covid-19 pandemic has been affecting the industry and its contribution to the local economy.
The Covid-19 pandemic has severely reduced the global demand for oil. But the low oil demand as well as the low crude oil price does not instantly cut down the fuel price since there is a refining process that takes place in between the upstream and downstream sectors.
The Covid-19 pandemic has been one of the key factors that has pushed the oil price to a new low and is limiting the supply and logistics chain in the oil and gas sector around the world, including Indonesia. SKK Migas have stated that the pandemic has led to significant disruption to oil and gas operations and demand as well as to oil and gas lifting.
As stated in the National Energy Plan, Indonesia is committed to develop renewable energy to make up to 23% of the national energy mix in 2025. However, the transition to renewable energy will take time and requires big investment. In this period of transition, natural gas has become an option for cleaner energy to reduce CO2 emissions and air pollution.
The Covid-19 pandemic has smothered global oil demand and the price war between Saudi Arabia and Russia has pushed the oil price down to around US$ 30 per barrel. Though it is not the first-time the oil price has reached such a low level, the current Covid-19 pandemic has made the situation more complex.
The government continues to streamline the permits that are needed in the oil and gas sector to speed up oil and gas projects and boost up lifting in order to achieve the target of 1 million barrels of oil per day (BOPD) in 2030.
The government have decided to lower the gas price for national industries to US$ 6 per million british thermal unit (MMBTU) starting on April 1st, 2020 and have stated that a lower gas price is required to strengthen the competitiveness of domestic industries and ultimately to boost overall economic growth. The government has also promised that the policy will not affect the oil and gas contractors' share as the Government will cut their own share.
The discovery of 2 trillion cubic feet of recoverable gas resources in the Kali Berau Deep Field in South Sumatera in early 2019 marked a new era of oil and gas exploration in Indonesia. Prior to it, it was almost two decades since the last significant discovery in Indonesia which was the Banyu Urip Field in Cepu Block by ExxonMobil Indonesia. The discovery was also among the ten largest finds worldwide in the period of 2018-2019. The discovery sparks real hope for Indonesia.
One of the key considerations for an oil and gas company before making an investment is the type of contract that will be used in the country concerned. In order to increase investment in the upstream sector, Indonesia decided to use the Gross Split scheme as the new type of production sharing contract (PSC) in 2017. Before the PSC Gross Split, Indonesia had various types of contracts but mostly in the last fifty years is PSC Cost Recovery.
Amidst the rise of electrical vehicles, the oil and gas industry remains important for Indonesia in the future. While fuel demand is predicted to decrease, the oil and gas industry will still be needed to develop Indonesia’s petrochemical industry and President Joko Widodo is aiming to stop the import of petrochemical products in 2024.