The government has estimated that any rise in global crude prices will remain modest, leading to lower targets for oil production in next year’s state budget proposal.
President Joko “Jokowi” Widodo said the government had proposed to set the Indonesian Crude Price (ICP) at US$48 per barrel in the 2018 state budget, $2 higher than in this year’s revised budget.
The slight increase was due to greater demand globally, he said during the House of Representatives’ plenary session in Jakarta on Wednesday.
Ready-to-sell oil and gas production, known as lifting, would also increase slightly to 2,000 barrels of oil equivalent per day (boepd). However, the oil lifting rate is expected to decline to 800,000 barrels of oil per day (bopd) from this year’s target of 815,000.
Energy and Mineral Resources Minister ‘Ignasius J onan said that the lower expectation was mostly due to depleted oil reserves and persistently low global oil prices, which served as disincentives for oil companies to enhance their oil recovery (EOR) activities and to raise output from unconventional oil production due to the large amounts of investment needed.
Most of Indonesia’s producing oil fields are categorized as old, and thus require EOR activities to maintain and boost output.
“If global oil prices remain under $50 per barrel, with an average rate of $48 from January to July, no company will be interested in EOR activities. It will not matter whether you try to encourage it using the cost recovery or gross-split scheme,” Jonan said, referring to the production sharing contract (PSC) scheme.
Indonesia has continued to battle with depleting oil reserves since its oil and gas heyday between the 1970s and 1990s, when it had a lifting rate of more than 1.6 million bopd. The struggle exacerbated at the end of 2014, when global oil prices plunged to around $30 per barrel, leaving many investors hesitant to increase their exploration and exploitation activities.
Global oil prices have improved since then, but is unlikely to reach the $100 mark in 2012. Bloomberg reported that benchmark West Texas Intermediate (WTI) traded crude at $ 47.68 per barrel on Wednesday afternoon, and fellow benchmark Brent had a similar price of $ 51.01. The government’s upbeat forecast of higher oil prices has hinged on higher demand from developing countries, such as India and China, with the United States Energy Information Administration predicting demand to rise to 100 million BPD next year from 98.38 million this year.
In addition to global oil prices, the decline in output is also attributable to many oil and gas working areas that are set to expire in the next decade, causing many contractors to cut down on their investments as they will not be able to reap the returns.
The low crude prices have also discouraged many investors from conducting exploration activities, particularly in frontier areas. Most of Indonesia’s possible and potential reserves are located in its eastern part, where riskier operation and a lack of infrastructure will require higher investments.
Based on current conditions, many believe that Indonesia’s oil reserves will be depleted in little over a decade if it maintains its lifting rate at above 800,000 bopd without any new discoveries. Data from the Upstream Oil and Gas Special Regulatory Task Force (SKK Migas) shows that Indonesia’s proven oil reserves dropped to 3,306 million stock tank barrels (mmstb) at the end of last year from 3,602 mmstb in 2015.
ReforMiner Institute researcher Pri Agung Rakhmanto said that the government’s estimation was pretty accurate as global crude prices were expected to remain stagnant at $50 next year.
“The ICP will remain stagnant as there is an oversupply in the global market right now,” he said, adding that the lifting target estimate was also reasonable as there would be no large projects operating next year.
Jakarta Post, Page-13, Friday, August 18, 2017
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