NrgEdge Editor

Sharing content and articles for users
Last Updated: May 15, 2017
1 view
Business Trends
image

  • 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]

3
4 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

Your Weekly Update: 13 - 17 May 2019

Market Watch

Headline crude prices for the week beginning 13 May 2019 – Brent: US$70/b; WTI: US$61/b

  • Crude oil prices are holding their ground, despite the markets showing nervousness over the escalating trade dispute between the USA and China, as well as brewing tensions in the Middle East over the Iranian situation
  • China retaliated against President Trump’s decision to raise tariffs from 10% to 25% on US$200 billion worth of Chinese imports by raising its own tariffs; crucially, China has also slapped taxes on US LNG imports at a time when American export LNG projects banking on Chinese demand are coming online
  • In the Middle East, Saudi Arabia reported that two of its oil tankers were attacked in the Persian Gulf, with the ‘sabotage attack’ near the UAE speculated to be related to Iran; with the US increasing its military presence in the area, the risk of military action has escalated
  • The non-extension of US waiver on Iranian crude is biting hard on Iran, with its leaders calling it ‘unprecedented pressure’, setting the stage for a contentious OPEC meeting in Vienna
  • In a move that is sure to be opposed by Iran, Saudi Arabia has said it is willing to meet ‘all orders’ from former Iranian buyers through June at least; Saudi Aramco is also responding to requests by Asian buyers to provide extra oil
  • The see-saw trend in US drilling activity continues; after a huge gain two weeks ago, the active US rig count declined for a second consecutive rig, with the loss of two oil rigs bringing the total site count to 988, below the equivalent number of 1,045 last year
  • There is considerably more upside to crude prices at the moment, with jitters over the health of the global economy and a delicate situation in the Middle East likely to keep Brent higher at US$71-73/b and WTI at US$62-64/b


Headlines of the week

Upstream

  • Occidental Petroleum and Warren Buffet have triumphed, as Chevron bowed out of a bidding war for Anadarko Petroleum; Occidental will now acquire Anadarko for US$57 billion, up significantly from Chevron’s US$33 billion bid
  • The deal means that Occidental’s agreement to sell Anadarko’s African assets to Total for US$8.8 billion will also go through, covering the Hassi Berkine, Ourhoud and El Merk fields in Algeria, the Jubilee and TEN fields in Ghana, the Area 1 LNG project in Mozambiuqe and E&P licences in South Africa
  • BP has sanctioned the Thunder Horse South Expansion Phase 2 deepwater project in the US Gulf of Mexico, which is expected to add 50,000 boe/d of production at the Thunder Horse platform beginning 2021
  • Africa is proving to be very fruitful for Eni, as it announced a new gas and condensate discovery offshore Ghana; the CTP-Block 4 in the Akoma prospect is estimated to hold some 550-650 bcf of gas and 18-20 mmbl of condensate
  • In an atypical development, South Africa has signed a deal for the B2 oil block in South Sudan, as part of efforts to boost output there to 350,000 b/d
  • Shell expects to drill its first deepwater well in Mexico by December 2019 after walking away with nine Mexican deepwater blocks last year

Midstream & Downstream

  • China’s domestic crude imports surged to a record 10.64 mmb/d in April, as refiners stocked up on an Iranian crude bonanza due to uncertainty over US policy, which has been confirmed as crude waivers were not renewed
  • Having had to close the Druzhba pipeline and Ust-Luga port for contaminated crude, Russia says it will fully restore compliant crude by end May shipments, including cargoes to Poland and the Czech Republic
  • Mexico’s attempt to open up its refining sector has seemingly failed, with Pemex taking over the new 340 kb/d refinery as private players balked at the US$8 billion price tag and 3-year construction deadline
  • Ahead of India’s move to Euro VI fuels in April 2020, CPCL is partially shutting down its 210 kb/d Manali refinery for a desulfurisation revamp
  • China’s Hengli Petrochemical is reportedly now stocking up on Saudi Arabian crude imports as it prepares to ramp up production at its new 400 kb/d Dalian refinery alongside its 175 kb/d site in Brunei
  • South Korea’s Lotte Chemical Corp expects its ethane cracker in Louisiana to start up by end May, adding 1 mtpa of ethylene capacity to its portfolio
  • Due to water shortage, India’s MRPL will be operating its 300 kb/d refinery in Katipalla at 50% as drought causes a severe water shortage in the area

Natural Gas/LNG

  • Partners in the US$30 billion Rovuma LNG project in Mozambique now expect to sanction FID by July, even after a recent devastating cyclone
  • Also in Mozambioque, Anadarko is set to announce FID on its Mozambique LNG project on June 18, calling it a ‘historic day’
  • After talks of a joint LNG export complex to develop gas resources in Tanzania, Shell and Equinor now appear to be planning separate projects
  • Gazprom has abandoned plans to build an LNG plant in West Siberia to compete with Novatek, focusing instead on an LNG complex is Ust-Luga
  • First LNG has begun to flow at Sempra Energy’s 13.5 mtpa Cameron LNG project in Louisiana, with exports expected to begin by Q319
May, 17 2019
Shell Eclipses ExxonMobil Once Again

The world’s largest oil & gas companies have generally reported a mixed set of results in Q1 2019. Industry turmoil over new US sanctions on Venezuela, production woes in Canada and the ebb-and-flow between OPEC+’s supply deal and rising American production have created a shaky environment at the start of the year, with more ongoing as the oil world grapples with the removal of waivers on Iranian crude and Iran’s retaliation.

The results were particularly disappointing for ExxonMobil and Chevron, the two US supermajors. Both firms cited weak downstream performance as a drag on their financial performance, with ExxonMobil posting its first loss in its refining business since 2009. Chevron, too, reported a 65% drop in the refining and chemicals profit. Weak refining margins, particularly on gasoline, were blamed for the underperformance, exacerbating a set of weaker upstream numbers impaired by lower crude pricing even though production climbed. ExxonMobil was hit particularly hard, as its net profit fell below Chevron’s for the first time in nine years. Both supermajors did highlight growing output in the American Permian Basin as a future highlight, with ExxonMobil saying it was on track to produce 1 million barrels per day in the Permian by 2024. The Permian is also the focus of Chevron, which agreed to a US$33 billion takeover of Anadarko Petroleum (and its Permian Basin assets), only for the deal to be derailed by a rival bid from Occidental Petroleum with the backing of billionaire investor guru Warren Buffet. Chevron has now decided to opt out of the deal – a development that would put paid to Chevron’s ambitions to match or exceed ExxonMobil in shale.

Performance was better across the pond. Much better, in fact, for Royal Dutch Shell, which provided a positive end to a variable earnings season. Net profit for the Anglo-Dutch firm may have been down 2% y-o-y to US$5.3 billion, but that was still well ahead of even the highest analyst estimates of US$4.52 billion. Weaker refining margins and lower crude prices were cited as a slight drag on performance, but Shell’s acquisition of BG Group is paying dividends as strong natural gas performance contributed to the strong profits. Unlike ExxonMobil and Chevron, Shell has only dipped its toes in the Permian, preferring to maintain a strong global portfolio mixed between oil, gas and shale assets.

For the other European supermajors, BP and Total largely matched earning estimates. BP’s net profits of US$2.36 billion hit the target of analyst estimates. The addition of BHP Group’s US shale oil assets contributed to increased performance, while BP’s downstream performance was surprisingly resilient as its in-house supply and trading arm showed a strong performance – a business division that ExxonMobil lacks. France’s Total also hit the mark of expectations, with US$2.8 billion in net profit as lower crude prices offset the group’s record oil and gas output. Total’s upstream performance has been particularly notable – with start-ups in Angola, Brazil, the UK and Norway – with growth expected at 9% for the year.

All in all, the volatile environment over the first quarter of 2019 has seen some shift among the supermajors. Shell has eclipsed ExxonMobil once again – in both revenue and earnings – while Chevron’s failed bid for Anadarko won’t vault it up the rankings. Almost ten years after the Deepwater Horizon oil spill, BP is now reclaiming its place after being overtaken by Total over the past few years. With Q219 looking to be quite volatile as well, brace yourselves for an interesting earnings season.

Supermajor Financials: Q1 2019

  • ExxonMobil – Revenue (US$63.6 million, down 6.7% y-o-y), Net profit (US$2.35 billion, down 49.5% y-o-y)
  • Shell - Revenue (US$85.66 billion, down 5.9% y-o-y), Net profit (US$5.3 billion, down 2% y-o-y)
  • Chevron – Revenue (US$35.19 billion, down 5% y-o-y), Net profit (US$2.65 billion, down 27.2% y-o-y)
  • BP - Revenue (US$67.4 billion, down 2.51% y-o-y), Net profit (US$2.36 billion, down 9.2% y-o-y)
  • Total - Revenue (US$51.2billion, up 3.2% y-o-y), Net profit (US$2.8 billion, down 4.0% y-o-y)
May, 15 2019
EIA revises its crude oil price forecast upward as supply expectations change

monthly average Brent crude spot price

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January, April, and May 2019 editions

In its May 2019 edition of the Short-Term Energy Outlook (STEO), EIA revised its price forecast for Brent crude oil upward, reflecting price increases in recent months, more recent data, and changing expectations of global oil markets. Several supply constraints have caused oil markets to be generally tighter and oil prices to be higher so far in 2019 than previous STEOs expected.

Members of the Organization of the Petroleum Exporting Countries (OPEC) had agreed at a December 2018 meeting to cut crude oil production in the first six months of 2019; compliance with these cuts has been more effective than EIA initially expected. In the January STEO, OPEC’s crude oil and petroleum liquids production was expected to decline by 1.0 million b/d in 2019 compared with the 2018 level, but EIA now forecasts OPEC production to decline by 1.9 million b/d in the May STEO.

Within OPEC, EIA expects Iran’s liquid fuels production and exports to also decline. On April 22, 2019, the United States issued a statement indicating that it would not reissue waivers, which previously allowed eight countries to continue importing crude oil and condensate from Iran after their waivers expired on May 2. Although EIA’s previous forecasts had assumed that the United States would not reissue waivers, the increased certainty regarding waiver policy and enforcement led to lower forecasts of Iran’s crude oil production.

Venezuela—another OPEC member—has experienced declines in production and exports as a result of recurring power outages, political instability, and U.S. sanctions. In addition to supply constraints that have already materialized in 2019, political instability in Libya may further affect global supply. Any further escalation in conflict may damage crude oil infrastructure or result in a security environment where oil fields are shut in. Either situation could reduce global supply by more than EIA currently forecasts.

In the May STEO, total OPEC crude oil and other liquids supply was estimated at 37.3 million b/d in 2018, and EIA forecasts that it will average 35.4 million b/d in 2019. EIA assumes that the December 2018 agreement among OPEC members to limit production will expire following the June 2019 OPEC meeting.

annual changes in global liquids production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January, April, and May 2019 editions

U.S. crude oil and other liquids production is sensitive to changes in crude oil prices, taking into account a lag of several months for drilling operations to adjust. As crude oil prices have increased in recent months, so too have EIA’s domestic liquid fuels production forecasts for the remaining months of 2019.

U.S. crude oil and other liquids production, which grew by 2.2 million b/d in 2018, is forecast in EIA’s May STEO to grow by 2.0 million b/d in 2019, an increase of 310,000 b/d more than anticipated in the January STEO. In 2019, EIA expects overall U.S. crude oil and liquids production to average 19.9 million b/d, with crude oil production alone forecast to average 12.4 million b/d.

Relative to these changes in forecasted supply, EIA’s changes in forecasted demand were relatively minor. EIA expects that global oil markets will be tightest in the second and third quarters of 2019, resulting in draws in global inventories. By the fourth quarter of 2019, EIA expects that inventories will build again, and Brent crude oil prices will fall slightly.

More information about changes in STEO expectations for crude oil prices, supply, demand, and inventories is available in This Week in Petroleum.

May, 15 2019