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Indonesia Oil & Gas Sector Outlook
2011
Media Briefing
Energy Practice, Frost & Sullivan
Jakarta
30th March 2011
Indonesia Outlook
Oil & Gas Sector: Market Trends
Table of Contents
Contents
Introduction1
2
3
Introduction
1 Introduction
Source: Compiled by Frost & Sullivan
• The objective of this presentation will be to:
• Cover the Emerging Trends in the Oil & Gas Industry
• Present F&S’ Perspective on Indonesia’s Oil & Gas Outlook for 2011
• Key takeaway: Global and Indonesian Oil & Gas Trends
Source: Compiled by Frost & Sullivan
Dynamics of Oil Pricing
2 Oil & Gas Sector: Market Trends
Unrest spreads to Saudi Arabia
$ 175/barrel
ME & NA unrest ends
$ 100/barrel
Unrest in North Africa & Middle East
(NA & ME) Continues
$ 125/barrel
• OPEC’s opinion is that oil supplies are constrained in the
current situation
• Saudi Arabia is the main anchor for global oil supply and
price stability
ME & NA unrest ends. Demand falls in
weak economies
$ 75/barrel
140
110
80
50
20
15
108
Crude Oil Spot Price (all Countries)
2011200820042000
Oil Price Forecast Scenarios
1
2
3
4
Indonesia maintains fuel stock for 22 days
Indonesia sources most of its crude from
Saudi Arabia and Singapore
Has agreement with neighboring
countries for oil supply incase situation in
the Middle East worsens
NA & ME Flare-up: Minimal Impact on
Indonesia’s oil supply
120
US$/b
Source: Compiled by Frost & Sullivan
Major Emerging Trends
2 Oil & Gas Sector: Market Trends
Key Trend 1: Strong Demand Driving Prices Up
Middle East & North Africa
unrest impacts supply and
adds to speculationJapan catastrophe to
increase gas demand
Strong Demand from
Asia
Shallow-water & Mature
Onshore Fields Depleting
Domestic Demand Versus
Import Commitments
Need to increase exploration
efforts and work mature fields
harder
Crude oil prices increase
driving up subsidy bill
Indonesia
Source: Compiled by Frost & Sullivan
Major Emerging Trends
2 Oil & Gas Sector: Market Trends
Increased Cost of Exploration
Gas Projects Gain
Prominence
Challenge to Attract
Investments
Tough Regulatory
Environment after Macondo
& Montara Incidents
Need to enact and enforce
regulations in tune with the
international standards
Incentives for oil & gas majors
to invest in Indonesia
Key Trend 2: Exploration & Production Move to Deeper Waters
Indonesia
Key fields in Indonesian Waters
Terang/Sirasun: 150 – 300 meters water depth
Gehem and Gendalo: 1070 to 1830 meters
West Seno expansion: 953 meters
Aton: 1,150 metersDeepwater Definition
• Deepwater: + 3000 ft (900 m)
• Ultra Deepwater: + 7000 ft (2100 m)
Cabotage Law revision
exempting O&G vessels a
positive step
Under Development
First Oil/Gas: 2014
Source: Compiled by Frost & Sullivan
2
Environmental Impact Controversies Restraining
Growth of the Industry
Coal Seam Gas (CSG)/CBM to LNG Projects to
Attract Investment
Key Trend 3: Emergence of Unconventional Gas as a Viable Option
Commercial production of CBM is still at a nascent stage in Indonesia
• The total CBM reserves in Indonesia is estimated to be 450 TCF
• This is more than double its natural gas reserves and the world's second largest CBM reserves after
China.
• At least 10 percent of these reserves can be extracted economically
Production Start-up in 2011; to be supplied to domestic power plants
• By 2015, Indonesia’s total production of unconventional gas to reach 100 million cubic feet per day
• By 2020, unconventional gas production to reach 500 million cubic feet per day
• Unconventional gas and CBM are expected to account for 30.0 percent of Indonesia’s energy mix in
2025
Major Emerging Trends
Oil & Gas Sector: Market Trends
Shale Gas Exploitation is a Possibility
• Indonesia is estimated to have shale gas reserves of 1000 TCF
• Shale gas can be produced in Indonesia by 2018 provided right steps are taken for harnessing this
energy resource.
Source: Compiled by Frost & Sullivan
2
The gas reserves in relation to the size of the individual fields
There are around 6000 fields with
reserves less than 5 trillion cubic
feet (TCF). Most of them are
considered stranded fields
Stranded gas reserves refer to the
natural gas, which have been
discovered but cannot be
developed due to their location
disadvantage or negative economics
of getting the natural
gas delivered to the marketplace
About 40% of global natural gas
reserves are located far from the
shores and are classified as
stranded
• Floating LNG Terminals (FLNG) can monetize stranded reserves held in over 2500 gas fields containing 0.1 to 5 trillion
TCF
Indonesia has identified 52 marginal fields (oil & gas) for development
Key Trend 4: Development of Marginal Fields
Major Emerging Trends
Oil & Gas Sector: Market Trends
Source: Compiled by Frost & Sullivan
Reserves & Upstream Expenditure
3 Indonesia OutlookT
rill
ion
Cu
bic
Mete
rs
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Oil Proved Reserves
Th
ou
sa
nd
Mil
lio
n B
arr
els
• More gas provinces to
increase proven natural gas
reserves
• Unconventional gas to add to
reserves
• More investments in gas
projects
• Falling Oil Reserves
• Oil projects are more
complex now
Total Upstream Exploration & Production Expenditure in Indonesia for 2011
is forecast to be US$ 17 billion.1TCM=35.3TCF
3
Offshore Drilling and Completion Capex (US $M) by Country 2009 -2012
Indonesia Outlook
Country 2009 2010 2011 2012 2009-2012
Australia 240 400 300 375 1315
China 40 40 0 70 150
India 180 230 140 270 820
Indonesia 135 135 230 235 735
Malaysia 250 120 320 230 920
Philippines 30 60 70 75 235
Total 875 985 1060 1255 4175
Australia, India,
Indonesia and Malaysia –
large Investments in
Drilling and Completion
0
200
400
600
800
1000
1200
1400
2009 2010 2011 2012
$ M
illi
on
Philippines
Malaysia
Indonesia
India
China
Australia
Source: Compiled by Frost & Sullivan
Source: Compiled by Frost & Sullivan
Oil Production & Consumption
3 Indonesia Outlook
Oil Exporter turned Importer
• Increasing domestic demand
• Falling domestic production
Remediation
• Brownfields to be rejuvenated
• More exploration to improve
reserves
• Reduce demand
Source: BP; Graphic: Mazamascience
The demand for oil is expected to ease as natural gas
increasingly substitutes oil in the power sector
US$ 10 billion is needed to halve
the current oil usage and to
replace it with gas
Oil
Source: Compiled by Frost & Sullivan
Oil Production Outlook
3 Indonesia Outlook
Oil Production Targets
• To meet these two targets,
E&P investments and good
project management
become important
• Data acquisition
techniques are necessary
for new discoveries
Source: BP MIGAS
954
MBOPD – 1000 Barrels per Day
Actual
(MBOPD)920* 920*
• Oil Production to decrease
or at best stay at current
levels in 2011 and 2012
• Forecast
Source: Compiled by Frost & Sullivan
Natural Gas Production and Consumption
3 Indonesia Outlook
Natural Gas • Domestic natural gas consumption is on the
increase
• Power Sector to see surge in gas demand
• Demand from other end users also to increase
Source: BP; Graphic: Mazamascience
Low price of existing export contracts.
Existing contracts, especially with China, are at $3
per mmbtu; compared to market rate of $6 per
mmbtu
Source: Compiled by Frost & Sullivan
Natural Gas Production Outlook
3 Indonesia Outlook
Gas Production Targets
Source: BP MIGAS
• If this potential is not realized,
• Indonesia is likely to be a net gas
importer by 2021
Bringing projects onstream on
time assumes importance if all
contracted commitments and
projected demand increase are
to be met
Source: Compiled by Frost & Sullivan
LNG Exports Outlook
3 Indonesia Outlook
• Donngi-Senoro LNG to export 70 to 75% of
its produce. Chubu Electric of Japan will be
the off-taker
• 2009 Imports: 25.92 BCM
• 2010 Imports at 2009 levels
• 2011 imports levels to decrease
LNG Exports: Traditional Markets for Indonesian LNG
Exports
Trends
• Imports volume to reduce in due course. LNG exports will fall to 362 cargoes in 2011 from 427 in 2010.
• Net gas importer by 2021 unless new projects come onstream
• Japan has committed up to $52.9 billion in
infrastructure investments over the next 15
years in Indonesia
Offshore Potential
3 Indonesia Outlook
Deepwater Potential: Tarakan basin; Papalan Basin
Thrust from Government for faster development of gas
projects for meeting domestic and export gas demand
East Kalimantan
Masela Block
10 TCF Reserves; water
depth 300m to 1000m
Inpex to invest $ 4.9 billion
For floating LNG plant (2.5
mmtpa) with production
start-up in 2016
Makassar Strait
Gehem, Gendalo, Gandang, Maha and Bangka fields
Chevron to developing East Kalimantan deepwater fields,
Gehem and Gendalo.
Invest ment $ 7 to 8 billion.
Plan Of Development approved
Source: Planning Dept, Govt of Indonesia; Petroleum Geo-Services ; Compiled by Frost & Sullivan
Shallow Water
• Bukit Tua
Deep Water
• Gehem
• Gendalo
• INPEX Masela FLNG
• Petramina FSRU
Prospective FPSO Projects
Source: Compiled by Frost & Sullivan
Floating Storage Re-gas Storage Units (FSRU) Projects
3 Indonesia Outlook
Location : Jakarta Bay, West Java
Start up plan : 2012
Capacity : 3 MTPA
Contractor : Golar LNG Energy
Location : East Java
Start up plan : 2013-14
Capacity : 2-4 MTPA
Location : Belawan, North Sumatra
Start up plan : 2013-14
Capacity : 3 MTPA
Source: Compiled by Frost & Sullivan
Refining Outlook
3 Indonesia Outlook
KEY ISSUES
• Finding Foreign Investors is crucial
• Low Complexity of most Indonesian
Refineries. Need to be upgraded to meet
EURO III or EURO IV standards
• Extremely low return on investment.
Investors need IRRs of 15% . Government
needs to provide incentives to boost
returns on investment
• Extremely low margin on sales of oil
products in Indonesia
1000
1020
1040
1060
1080
1100
1120
1140
1160
1180
2001 2002 2003 2004 2005 2006 2007 2008 2009
Refining Capacity
Th
ou
sa
nd
Barr
els
per
Day
Plans to add 750,000 b/d of refining capacity (both by way of expansion
and new builds) by 2014. This is now not feasible with in that timeframe
given the delay in financing.
• Cilacap refinery 60,000 b/d Residue Fluid Catalytic Cracker (2013)
• Balikpapan capacity extension 40,000 b/d (2014)
• Dumai refinery 50,000 b/d (2014)
• Balongan 200,000 b/d (2014)
• New Banten Bay refinery 300,000 b/d (2015)
• Tuban refinery 200,000 b/d (2017)
• Pare Pare refinery 300,000 b/d (2011)
Source: Compiled by Frost & Sullivan
Oil Subsidies Across the World
3 Indonesia Outlook
Nigeria
India
Indonesia
Malaysia
China
Iran
Chile Others....
Most Emerging Nations have Oil
SubsidiesMany developed countries continue to provide
direct producer subsidies to oil companies
These nations account for more than
70% of the oil demand increase
Oil exporting countries subsidize fuel to citizens
encouraging wastage
These countries also finance projects that are not
fuel friendly
Canada provides over $2 billion per year to oil
companies
European Union provided $8 billion in
subsidies to oil companies in 2009
U.S. producer subsidies reached $52 billion in
2009
Source: Compiled by Frost & Sullivan
Cost of Global Oil Subsidies
3 Indonesia Outlook
With increasing oil prices and budget deficits, most
countries are considering removing subsidies
Global Subsidy Bill
Global Subsidy is directly related to oil prices; higher
the prices, higher the subsidy
Removal of Subsidy will benefit China, India and Oil Producers most
100
200
300
400
500
Billio
n D
ollars
$558
$312
$250
Oil Price
Global Subsidy
bill
Source: Compiled by Frost & Sullivan
Impact of Removal of Oil Subsidies in Indonesia
3 Indonesia Outlook
Removal of subsidy has an inflationary effect in the short term
Higher prices for Petrol, Diesel, Kerosene and other refined oil
products
Oil demand will increase at a slower pace
Budget deficit dramatically reduces; so Government has more
funds for development
Subsidies not sustainable in the long run It is inevitable that subsidies will be gradually phased out in Indonesia
Source: Compiled by Frost & Sullivan
Opportunities Along the Value Chain
Exploration &
DevelopmentRefining
Downstream
Distribution
3 Indonesia Outlook
Upstream
Production
Rejuvenate
Brown Fields
Step Up
Exploration
Efforts
Increase
Refining
Capacity
Phase Out
Subsidies
Bring Projects
Onstream as
Scheduled
Development
of Marginal
Fields
Upgrade
Existing
Facilities
Strengthen
Domestic Gas
Network
Infrastructure
• Investment in Petroleum,
CBM and Shale Gas
acreages
• Marginal field development
• FPSO
• FLNG
• Marine Support Vessels
• Brownfield services
• Decommissioning
Services
• Refinery products and
services
• Project investment
• Gas Network
Infrastructure
• Retail Infrastructure for
non-subsidised fuel
• Addition of gasoline retail
stations
Action Ite
ms
Op
port
unitie
s
Dewi NurainiCorporate Communications
Indonesia
Phone : (021) 571.0838 / 571.3246
Email : [email protected]
For Additional Information
www.frost.com