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Last Updated: May 15, 2017
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  • Platform to formulate actionable solutions to grow the industry and the economy
  • Need urgent action to re-attract investment to Indonesia

 

Jakarta, May 10, 2017 - The ongoing global oil price crisis has brought a tremendous domino effect to various sectors in Indonesia, such as slowdown of economic growth in certain regions, struggling oil and gas supporting industries, significant worker lay off and other social impacts in the community. SKK Migas’ data shows 27% year-on-year decline in upstream oil and gas investment, from 15.34 billion USD in 2015 to 11.15 billion USD in 2016. The government and relevant parties must take immediate action for Indonesia to avoid a wider and prolonged energy crisis. A comprehensive long-term solution, that starts with fit-for-purpose policy reform, is much needed.

Marjolijn Wajong, Executive Director of IPA, stated, "I can not stress enough the urgency of the current situation. No significant discovery of new reserves due to low exploration activity will hit Indonesia’s production capability in immediate future. Production decline will get worse if we only rely on existing maturing producing areas. We need to find new reserves in new areas. We need massive investment to do that.”

IPA President Christina Verchere, said that "Indonesia is competing for capital regionally and globally, and therefore it must be attractive enough to attract investment.”

In that spirit, the Indonesian Petroleum Association (IPA) will convene its 41st Convention & Exhibition (Convex) on 17-19 May 2017 at the Jakarta Convention Center, with the theme “Accelerating Reform to Re-Attract Investment to Meet the Economic Growth Target”. This is a forum for policy makers, industry leaders, potential investors and experts to jointly seek actionable solutions which will spur the growth of the industry, which will then induce economic growth across various sectors in Indonesia.

Multiplier Effects and Challenges of the Indonesian Oil and Gas Industry

 “The Indonesian oil and gas industry, combined with all its supporting sectors, has a large multiplier effect on the Indonesian economy. According to Katadata, every million USD invested in upstream generates 1.6 million USD added value, creates around 100 jobs and adds 700 thousand USD to GDP,” explained Tumbur Parlindungan, IPA Board Director.

Such significant economic impact, unfortunately, is still constrained by various challenges currently faced by upstream oil and gas industry in Indonesia such as legal certainty, competitiveness of fiscal regime, regulatory reform (revision of Government Regulation No. 79 of 2014 and the economics of gross split scheme), and cost of capital. This resulted in declining oil production, alarmingly low reserve replacement ratio, slow investment in domestic gas infrastructure, and lack of interest in new blocks offered by Indonesia.

IPA, according to Marjolijn Wajong, is keen to actively contribute in the formulation of policies to increase investment and productivity of upstream oil and gas industry in Indonesia.

 

 Looking for Immediate Solution for Oil and Gas Crisis in Indonesia

Without further significant investment, critical exploration activity will continue to decline and Indonesia’s oil and gas potential will not bring any additional value and benefits to the state and its people. IPA believes that building a positive oil and gas investment atmosphere should be a priority for the Indonesian government to re-attract investment in this sector. This will be discussed in depth at the IPA’s 41st Convex.

IPA Convex is the largest convention and exhibition event in Asia Pacific which is a place for Collaboration, Cooperation and Coordination among stakeholders of oil and gas sector in Indonesia. "At the IPA Convex, the relevant stakeholders will discuss key topics to find immediate solutions for the challenges facing Indonesia’s upstream oil and gas industry," said Michael Putra, Chairman of IPA Convex 2017.

The three Plenary Sessions: Re-Attracting Upstream Oil and Gas Investment amidst the Global Capital Efficiency Drive; Beyond Revenues: The Indispensable Contribution of the Upstream Industry to Local Industry and Economic Growth; and Priority Reforms to Re-Attract Investment, are expected to dissect the challenges from many angles to then recommend a comprehensive and immediate actionable steps to re-attract investment.  A Special Session will be convened to discuss the important human capital aspect of the industry. The topic “Investing in Indonesians: Impact of the Current Landscape” is to be discussed by representatives of various Indonesian oil and gas’ professional associations.

Scheduled to be opened by President Joko Widodo, more than 100 exhibitors from the oil and gas industry and various relevant sectors including service companies, contractors, government organizations, media, chambers of commerce, etc., have confirmed their attendance to showcase the latest technologies and industry best practices at the exhibition.

There will be more than 110 oral papers and 60 poster that will emphasize the achievements and the breakthrough of the latest developments within the industry, which will be delivered in technical sessions and poster sessions.

“Equally important with the policy discussions, the IPA Convex will also convene its signature knowledge transfer sessions where hundreds of young Indonesians participate in dozens of technical sessions. Over the many years, IPA Convex has accumulated over 3,400 international-quality technical papers – all were done by Indonesians. In addition to nurturing technical knowledge, this year we proudly introduces Business Case Competition to our portfolio of program. The industry faces more and more non-technical challenges, and we are keen to see our young talents getting ready to address them. Over 200 participants took part to test their business acumen in solving the complex set of commercial, political, and societal issues,” explained Michael.


About The Indonesian Petroleum Association (IPA)

The Indonesian Petroleum Association (IPA) is a non-profit organization that was established
in 1971 and is the primary oil and gas industry association in Indonesia, consisting of 42
companies members, 107 association members and more than 1.000 invidual members.

The IPA is the “Partner of Choice” for government to promote the upstream oil and gas
industry through the formulation of appropriate policies and to facilitate consultation,
coordination, and collaboration between all stakeholders, government and its agencies, to
advance the development of the oil and gas industry in Indonesia.

The IPA also promotes the continuation of education and knowledge transfer as a key
contribution towards the development of national capacity through technical courses,
workshops, site visits and the annual IPA Convention and Exhibition.

 

 About the IPA Convention and Exhibition

The IPA Convention and Exhibition is the most prominent oil and gas annual event in the
Southeast Asia region and has been held for the past 40 years.

The IPA Convention and Exhibition brings together policy makers, regulators, experts,
investors, operators and support sectors to exchange ideas, learn of new advanced
technologies and partner together to enhance future investment in the oil and gas industry
in Indonesia.

 

For more information, please contact:

 

Marjolijn Wajong

Executive Director, Indonesian Petroleum Association

Email: [email protected]

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Recalibrating Singapore’s Offshore Marine Industry

The state investment firm Temasek Holdings has made an offer to purchase control of Singaporean conglomerate Keppel Corp for S$4.1 billion. News of this has reverberated around the island, sparking speculation about what the new ownership structure could bring – particularly in the Singaporean rig-building sector.

Temasek already owns 20.5% of Keppel Corp. Its offer to increase its stake to 51% for S$4.1 billion would see it gain majority shareholding, allowing a huge amount of strategic flexibility. The deal would be through Temasek’s wholly-owned subsidiary Kyanite Investment Holdings, offering S$7.35 per share of Keppel Corp, a 26% premium of the traded price at that point. The financial analyst community have remarked that the bid is ‘fair’ and ‘reasonable’, and there appears to be no political headwinds against the deal being carried out with the exception of foreign and domestic regulatory approval.

The implications of the deal are far-ranging. Keppel Corp’s business ranges from property to infrastructure to telecommunications, including Keppel Land and a partial stake in major Singapore telco M1. Temasek has already said that it does not intend to delist and privatise Keppel Corp, and has a long-standing history of not interfering or getting involved in the operations or decisions of its portfolio companies.

This might be different. Speculation is that this move, if successful could lead to a restructuring of the Singapore offshore and marine industry. Since 2015, Singapore’s rig-building industry has been in the doldrums as global oil prices tumbled. Although prices have recovered, cost-cutting and investment reticence have provided a slower recovery for the industry. In Singapore, this has affected the two major rigbuilders – Keppel O&M and its rival Sembcorp Marine. In 2018, Keppel O&M reported a loss of over SS$100 million (although much improved from its previous loss of over SS$800 million); Sembcorp Marine, too, faces a challenging market, with a net loss of nearly 50 million. Temasek itself is already a majority shareholder in Sembcorp Marine.

Once Keppel Corp is under Temasek’s control, this could lead to consolidation in the industry. There are many pros to this, mainly the merging of rig-building operations and shipyards will put Singapore is a stronger position against giant shipyards of China and South Korea, which have been on an asset buying spree. With the overhang of the Sete Brasil scandal over as both Keppel O&M and Sembcorp Marine have settled corruption allegations over drillship and rig contracts, a merger is now increasingly likely. It would sort of backtrack from Temasek’s recent direction in steering away from fossil fuel investments (it had decided to not participate in the upcoming Saudi Aramco IPO for environmental concerns) but strengthening the Singaporeans O&M industry has national interest implications. As a representative of Temasek said of its portfolio – ‘(we are trying to) re-purpose some businesses to try and grasp the demands of tomorrow.’ So, if there is to be a tomorrow, then Singapore’s two largest offshore players need to start preparing for that now in the face of tremendous competition. And once again it will fall on the Singaporean government, through Temasek, to facilitate an arranged marriage for the greater good.

Keppel and Sembcorp O&M at a glance:

Keppel Offshore & Marine, 2018

  • Revenue: S$1.88 billion (up from S$1.80 billion)
  • Net Profit: -S$109 million (up from -S$826 million)
  • Contracts secured: S$1.7 billion

Sembcorp Marine, 2018

  • Turnover: S$4.88 billion (up from S$3.03 billion)
  • Net Profit: -S$48 million (down from S$157 million)
  • Contracts secured: S$1.2 billion
October, 22 2019
Global energy consumption driven by more electricity in residential, commercial buildings

Energy used in the buildings sector—which includes residential and commercial structures—accounted for 20% of global delivered energy consumption in 2018. In its International Energy Outlook 2019 (IEO2019) Reference case, the U.S. Energy Information Administration (EIA) projects that global energy consumption in buildings will grow by 1.3% per year on average from 2018 to 2050. In countries that are not part of the Organization for Economic Cooperation and Development (non-OECD countries), EIA projects that energy consumed in buildings will grow by more than 2% per year, or about five times the rate of OECD countries.

building sector energy consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case

Electricity—the main energy source for lighting, space cooling, appliances, and equipment—is the fastest-growing energy source in residential and commercial buildings. EIA expects that rising population and standards of living in non-OECD countries will lead to an increase in the demand for electricity-consuming appliances and personal equipment.

EIA expects that in the early 2020s, total electricity use in buildings in non-OECD countries will surpass electricity use in OECD countries. By 2050, buildings in non-OECD countries will collectively use about twice as much electricity as buildings in OECD countries.

average annual change in buildings sector electricity consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

In the IEO2019 Reference case, electricity use by buildings in China is projected to increase more than any other country in absolute terms, but India will experience the fastest growth rate in buildings electricity use from 2018 to 2050. EIA expects that use of electricity by buildings in China will surpass that of the United States by 2030. By 2050, EIA expects China’s buildings will account for more than one-fifth of the electricity consumption in buildings worldwide.

As the quality of life in emerging economies improves with urbanization, rising income, and access to electricity, EIA projects that electricity’s share of the total use of energy in buildings will nearly double in non-OECD countries, from 21% in 2018 to 38% in 2050. By contrast, electricity’s share of delivered energy consumption in OECD countries’ buildings will decrease from 24% to 21%.

building sector electricity consumption per capita by region

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

The per capita use of electricity in buildings in OECD countries will increase 0.6% per year between 2018 and 2050. The relatively slow growth is affected by improvements in building codes and improvements in the efficiency of appliances and equipment. Despite a slower rate of growth than non-OECD countries, OECD per capita electricity use in buildings will remain higher than in non-OECD countries because of more demand for energy-intensive services such as space cooling.

In non-OECD countries, the IEO2019 Reference case projects that per capita electricity use in buildings will grow by 2.5% per year, as access to energy expands and living standards rise, leading to increased use of electric-intensive appliances and equipment. This trend is particularly evident in India and China, where EIA projects that per capita electricity use in buildings will increase by 5.3% per year in India and 3.6% per year in China from 2018 to 2050.

October, 22 2019
Natural gas inventories surpass five-year average for the first time in two years

Working natural gas inventories in the Lower 48 states totaled 3,519 billion cubic feet (Bcf) for the week ending October 11, 2019, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). This is the first week that Lower 48 states’ working gas inventories have exceeded the previous five-year average since September 22, 2017. Weekly injections in three of the past four weeks each surpassed 100 Bcf, or about 27% more than typical injections for that time of year.

Working natural gas capacity at underground storage facilities helps market participants balance the supply and consumption of natural gas. Inventories in each of the five regions are based on varying commercial, risk management, and reliability goals.

When determining whether natural gas inventories are relatively high or low, EIA uses the average inventories for that same week in each of the previous five years. Relatively low inventories heading into winter months can put upward pressure on natural gas prices. Conversely, relatively high inventories can put downward pressure on natural gas prices.

This week’s inventory level ends a 106-week streak of lower-than-normal natural gas inventories. Natural gas inventories in the Lower 48 states entered the winter of 2017–18 lower than the previous average. Episodes of relatively cold temperatures in the winter of 2017–18—including a bomb cyclone—resulted in record withdrawals from storage, increasing the deficit to the five-year average.

In the subsequent refill season (typically April through October), sustained warmer-than-normal temperatures increased electricity demand for natural gas. Increased demand slowed natural gas storage injection activity through the summer and fall of 2018. By November 30, 2018, the deficit to the five-year average had grown to 725 Bcf. Inventories in that week were 20% lower than the previous five-year average for that time of year. Throughout the 2019 refill season, record levels of U.S. natural gas production led to relatively high injections of natural gas into storage and reduced the deficit to the previous five-year average.

The deficit was also decreased as last year’s low inventory levels are rolled into the previous five-year average. For this week in 2019, the preceding five-year average is about 124 Bcf lower than it was for the same week last year. Consequently, the gap has closed in part based on a lower five-year average.

Lower 48 natural gas inventories, difference to five-year average

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report

The level of working natural gas inventories relative to the previous five-year average tends to be inversely correlated with natural gas prices. Front-month futures prices at the Henry Hub, the main price benchmark for natural gas in the United States, were as low as $1.67 per million British thermal units (MMBtu) in early 2016. At about that same time, natural gas inventories were 874 Bcf more than the previous five-year average.

By the winter of 2018–19, natural gas front-month futures prices reached their highest level in several years. Natural gas inventories fell to 725 Bcf less than the previous five-year average on November 30, 2018. In recent weeks, increasing the Lower 48 states’ natural gas storage levels have contributed to lower natural gas futures prices.

Lower 48 natural gas inventories and Henry Hub futures prices

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report and front-month futures prices from New York Mercantile Exchange (NYMEX)

October, 21 2019