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
For more information, please contact:
Executive Director, Indonesian Petroleum Association
Email: [email protected]
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The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects
Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
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