I was honored to be asked to write the following article for the Jakarta Post's special edition that was published for the Indonesian Petroleum Association (IPA) 2017 Conference and Exhibition.
This article covers four main areas for oil and natural gas prospecting in Indonesia as follows: Prospective, quality and depth of geological data, regulations, and incentives, and what needs to be done.
Prospective reserves similar to the Duri and Minas fields which were discovered during the second world war will be difficult to find and may not exist, but who knows for sure?
The oil discovery in Cepu, Central - East Java area was only 600 MMBO. However, if we are looking for oil fields of 20 - 50 or 100 MMBO reserves that are close enough to processing facilities, it is believed that these fields do exist.
The Pre-Tertiary Arafura - West Papua, Banda Arch and Bintuni - Salawati Basins are considered prospective for future exploration targets. The USGS has estimated that the mean total of undiscovered resources for oil, gas and NGL from the three geologic provinces, are 4.566 BBO, 60.836 TCFG and 1.839 BBNGL respectively. In Java, pre-volcanic resources along the island are good future exploration targets. There are many sedimentary basins covered by volcanic rocks from the young quaternary volcanoes, numerous oil and gas seeps that have occurred in the volcanic areas of Java Island, geochemically correlated to the pre-volcanic sources. This indicates the presence of active petroleum systems underneath the volcanic covers. Fractured basement reservoirs are also future exploration opportunities, both in Western and Eastern Indonesia. Lessons learned from global success stories are encouraging and need to be heeded by Indonesian Geoscientists.
Many of the deeper horizons have not been properly imaged; stratigraphic traps have not been fully explored. Basins below the young volcanic's can be explored using Innovative technology; so far Magnetotelluric, Gravity and Magnetics have been used to try to image these formations with limited success.
It was stated recently by a respected Earth Scientist (ex Chevron) “that many of the so-called Mature Fields could be classified as New Fields” if new ideas for exploration are adopted. There is a huge potential to develop these, they can become like new discoveries, just by understanding the structure of the reservoirs in detail, albeit some of the reserves may be small in size from 20 to 100 MMBO, they may not be commercially attractive, but if we look at some fields in the USA that only produce 1 – 2 BPD, small fields can become prospective, using mobile processing plants is one answer. As we like to say, “there is more than one way to skin a cat”.
The quality and depth of data that is being offered to potential investors is generally poor, a lot of the data was gathered during 1960 - 2000, as well as data from the Dutch and Japanese occupation eras. Indonesia has complicated geology, deep-water areas, it covers a large area with difficult terrain, which means it is expensive and time-consuming to explore by traditional methods.
An experienced geologist stated that when they went exploring, “they knew that their chances of success were in the region of twenty percent”, this is far too low, the chances of success has to be increased to sixty or eighty percent.
The reality is, Indonesia’s oil & gas potential is still not well explored, huge potential still awaits discovery. Innovative technology is required which can be integrated with existing data; this then becomes a new cycle of exploration, targeting the deep and smaller structural and stratigraphic traps, as well as the overlooked shallow targets, both onshore and offshore.
In regard to regulations and incentives, for Indonesia to be aware of its resources and reach its full potential, improvements are needed in the legal and regulatory frameworks as well as fiscal incentives to attract investment.
This needs consistency of regulations and not a constant change of ministers, changes of top positions in the state-owned oil company, all of whom have their own ideas, this has resulted in many changes of staff in key positions, which means there has been very little stability in policies. Indonesia has become more protective, giving more responsibility to the state-owned company; it is well known that national companies do not perform as well as private companies that are answerable to their shareholders. Indonesia’s resource industry is not the most attractive for local and international investors.
The government of Indonesia (GOI) has introduced several regulations such as the “Gross Split” scheme, although in my opinion, none of these address’s the real issue, which is simple “reliable resource data is required” the only way to obtain reliable data is to carry out exploration, the GOI is still expecting investors to be interested in tendering for a license, although the terms are not conducive for investors. If local banks and entrepreneurs will not invest in the exploration of their country’s resources as they consider that the risk is too high, how can Indonesia expect international investment? (if they even want it, as Indonesian politics has boosted the appeal of resource nationalism within policymaking circles). They cannot, although the GOI constantly states, we need investment to carry out exploration.
Credit has to be given to the regulators for addressing some of the problems, although one wonders if the bigger picture is being looked at. All anyone seems to talk about is the low price of oil, it is stated that exploration is too expensive and the cost of oil is too low, this is a "Chicken and Egg" situation, be time the price goes up (if ever) we start exploration, then the cost of oil comes down, the next excuse is that the cost of oil is too low to exploit what has been found, this is the scenario if we continue to explore with traditional methods. What happened when the price of oil was high?
It also does not help when amendments to the 2001 oil and gas law are delayed or pending at the “House of Representatives” for the past four years. Although it is understood that the final draft has just been submitted as I am publishing this article, although it is expected the regulations will be some time before it is finalized.
What is the solution? The GOI along with the private sector of Indonesia should bring the banks on board to invest in their own country for a comprehensive knowledge of the country's resources, we all know that to explore the whole of Indonesia is not possible, due to terrain, geology, cost and time, which makes many parts of Indonesia unexplorable, therefore Indonesia will never know what resources it truly has, it will continue to say we are rich in resources without knowing where they are. Indonesia should know what resources it has, Indonesia can not keep saying it is rich in resources without being able to support this statement.
Therefore the GOI needs to be responsible for the exploration of their own country, both onshore and offshore, different methods of exploration that enhances traditional methods has to be used, methods that have been well proven but not believed by many geoscientists in Indonesia because they are not aware of other methods other than traditional methods, minds have to be opened to innovative ideas, not just “Smart Phone Technology”.
By having reliable resource data, it will attract investors, although if Indonesia continues to expect investors to take all of the risks, investment is not going to happen. Recently several blocks have been tendered with very little if any interest, sorry to say, it is not just the oil price that is unattractive, the terms and conditions are also unattractive, is anyone really asking the question, why are investors not interested?
Anyone who tenders for a block needs to be assured that they have a reasonable chance of success, not a 10 - 20% chance of success, but a 60 – 80% chance, this then becomes interesting. The cost to tender can be increased as the data in the data bank means something, then the gross split may work, as the investor knows that they will get a return on their investment.
The technology is available that allows Indonesia to be fully aware of its resource potential, which will allow traditional tools of exploration such as seismic to become a confirmation tool instead of an exploration tool, in areas that seismic is effective, not in volcanic areas.
At the end of the day, if geologists are honest with themselves, they need help, they need data and they need jobs, exploration is not happening as it should for all the reasons that have been stated, the solutions are available.
We should not be drilling unless we know that the risk has been reduced, the cost of innovative exploration is a fraction of drilling a dry hole on land and offshore in deep water, Innovative Exploration Technology needs be used which supports and enhances the knowledge of any given area. The whole of Indonesia then becomes explorable.
Indonesia needs to invest in its self, it needs innovative ideas to achieve its goals.
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Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory
In both 2019 and 2020, project developers in the United States installed more wind power capacity than any other generating technology. According to data recently published by the U.S. Energy Information Administration (EIA) in its Preliminary Monthly Electric Generator Inventory, annual wind turbine capacity additions in the United States set a record in 2020, totaling 14.2 gigawatts (GW) and surpassing the previous record of 13.2 GW added in 2012. After this record year for wind turbine capacity additions, total wind turbine capacity in the United States is now 118 GW.
The impending phaseout of the full value of the U.S. production tax credit (PTC) at the end of 2020 primarily drove investments in wind turbine capacity that year, just as previous tax credit reductions led to significant wind capacity additions in 2012 and 2019. In December 2020, Congress extended the PTC for another year.
Source: U.S. Energy Information Administration, Electric Power Monthly
Texas has the most wind turbine capacity among states: 30.2 GW were installed as of December 2020. In 2020, Texas generated more electricity from wind than the next three highest states (Iowa, Oklahoma, and Kansas) combined. However, Texas generates and consumes more total electricity than any other state, and wind remains slightly less than 20% of the state’s electricity generation mix.
In two other states—Iowa and Kansas—wind is the most prevalent source of in-state electricity generation. In both states, wind surpassed coal as the state’s top electricity generation source in 2019.
Source: U.S. Energy Information Administration, Electric Power Monthly
Nationally, 8.4% of utility-scale electricity generation in 2020 came from wind turbines. Many of the turbines added in late 2020 will contribute to increases in wind-powered electricity generation in 2021. EIA expects wind’s share of electricity generation to increase to 10% in 2021, according to forecasts in EIA’s most recent Short-Term Energy Outlook.
It was a good run while it lasted. Almost exactly a decade ago, the military junta in Myanmar was dissolved, following civilian elections. The country’s figurehead, Aung San Suu Kyi, was released from house arrest to lead, following in the footsteps of her father. Although her reputation has since been tarnished with the Rohingya crisis, she remains beloved by most of her countrymen, and her installation as Myanmar’s de facto leader lead to a golden economic age. Sanctions were eased, trade links were restored, and investment flowed in, not least in the energy sector. Yet the military still remained a powerful force, lurking in the background. In early February, they bared their fangs. Following an election in November 2020 in which Aung San Suu Kyi’s National League for Democracy (NLD) won an outright majority in both houses of Parliament. A coup d’etat was instigated, with the Tatmadaw – the Burmese military – decrying fraud in the election. Key politicians were arrested, and rule returned to the military.
For many Burmese, this was a return to a dark past that many thought was firmly behind them. Widespread protests erupted, quickly turning violent. The Tatmadaw still has an iron grip, but it has created some bizarre situations – ordinary Burmese citizens calling on Facebook and foreign governments to impose sanctions on their country, while the Myanmar ambassador to the United Nations was fired for making an anti-army speech at the UN General Assembly.
The path forward for Myanmar from this point is unclear. The Tatmadaw has declared a state of emergency lasting up to a year, promising new elections by the end of 2021. There is little doubt that the NLD will win yet another supermajority in the election, IF they are fair and free. But that is a big if. Meanwhile, the coup threatens to return Myanmar to the pariah state that it was pre-2010. And threatens to abort all the grand economic progress made since.
In the decade since military rule was abolished, development in Myanmar has been rapid. In the capital city Yangon, glittering new malls have been developed. The Ministry of Energy in 2009 was housed in a crumbling former high school; today, it occupies a sprawling complex in the new administrative capital of Naypyidaw. While not exactly up to the level of the Department of Energy in Washington DC, it is certainly no longer than ministry that was once reputed to take up to three years to process exploration licences for offshore oil and gas blocks.
And it is that very future that is now at stake. Energy has been a great focus for investment in Myanmar, drawn by the rich offshore deposits in the Andaman Sea and the country’s location as a possible pipeline route between the Middle East and inland China. Estimates suggest that – based on pre-coup trends – Myanmar was likely to attract over US$1.1 billion in upstream investment in 2023, more than four times projected for 2021 and almost 20 times higher than 2011. The funds would not only be directed at maintaining production at the current Yadana, Yetagun, Zawtika and Shwe gas fields – where offshore production is mainly exported to Thailand, but also upcoming megaprojects such as Woodside and Total’s A-6 deepwater natural gas and PTTEP’s Aung Sinka Block M3 developments.
The coup now presents foreign investors in Myanmar’s upstream energy sector with a conundrum and reputational risk. Stay, and risk being seen as abetting an undemocratic government? Or leave, and risk being flushing away years of hard work? The home governments of foreign investors such as Total, Chevron, PTTEP, Woodside, Petronas, ONGC, Nippon Oil, Kogas, POSCO, Sumitomo, Mitsui and others have already condemned the coup. For now these companies are hoping that foreign pressure will resolve the situation in a short enough timeframe to allow business to resume. Australia’s Woodside Petroleum has already called the coup a ‘transitionary issue’ claiming that it will not affect its exploration plans, while other operators such as Total and Petronas have focused on the safety of their employees as they ‘monitor the evolving situation’.
But the longer the coup lasts without a resolution satisfactory to the international community and the longer the protests last (and the more deaths that result from that), the more untenable the position of the foreign upstream players will be. Asian investors, especially the Chinese, mainly through CNPC/PetroChina, and the Thais, through PTTEP - will be relatively insulated, but American and European majors face bigger risks. This could jeopardise key projects such as the Myanmar-to-China crude oil and natural gas pipeline project (a 771km connection to Yunnan), two LNG-to-power projects (Thaketa and Thilawa, meant to deal with the country’s chronic blackouts) and the massive Block A-6 gas development in the Shwe Yee Htun field by Woodside which just kicked off a fourth drilling campaign in December.
It is a big unknown. The Tatmadaw has proven to be impervious to foreign criticism in the past, ignoring even the most stringent sanctions thrown their way. In fact, it was a huge surprise that the army even relinquished power back in 2010. But the situation has changed. The Myanmar population is now more connected and more aware, while the army has profited off the opening of the economy. The economic consequences of returning to its darker days might be enough to trigger a resolution. But that’s not a guarantee. What is certain is that the coup will have a lasting effect on energy investment and plans in Myanmar. How long and how deep is a question that only the Tatmadaw can answer.
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The year 2020 was exceptional in many ways, to say the least. All of which, lockdowns and meltdowns, managed to overshadow a changing of the guard in the LNG world. After leapfrogging Indonesia as the world’s largest LNG producer in 2006, Qatar was surpassed by Australia in 2020 when the final figures for 2019 came in. That this happened was no surprise; it was always a foregone conclusion given Australia’s massive LNG projects developed over the last decade. Were it not for the severe delays in completion, Australia would have taken the crown much earlier; in fact, by capacity, Australia already sailed past Qatar in 2018.
But Australia should not rest on its laurels. The last of the LNG mega-projects in Western Australia, Shell’s giant floating Prelude and Inpex’s sprawling Ichthys onshore complex, have been completed. Additional phases will provide incremental new capacity, but no new mega-projects are on the horizon, for now. Meanwhile, after several years of carefully managing its vast capacity, Qatar is now embarking on its own LNG infrastructure investment spree that should see it reclaim its LNG exporter crown in 2030.
Key to this is the vast North Field, the single largest non-associated gas field in the world. Straddling the maritime border between tiny Qatar and its giant neighbour Iran to the north, Qatar Petroleum has taken the final investment decision to develop the North Field East Project (NFE) this month. With a total price tag of US$28.75 billion, development will kick off in 2021 and is expected to start production in late 2025. Completion of the NFE will raise Qatar’s LNG production capacity from a current 77 million tons per annum to 110 mmtpa. This is easily higher than Australia’s current installed capacity of 88 mmtpa, but the difficulty in anticipating future utilisation rates means that Qatar might not retake pole position immediately. But it certainly will by 2030, when the second phase of the project – the North Field South (NFS) – is slated to start production. This would raise Qatar’s installed capacity to 126 mmtpa, cementing its lead further still, with Qatar Petroleum also stating that it is ‘evaluating further LNG capacity expansions’ beyond that ceiling. If it does, then it should be more big leaps, since this tiny country tends to do things in giant steps, rather than small jumps.
Will there be enough buyers for LNG at the time, though? With all the conversation about sustainability and carbon neutrality, does natural gas still have a role to play? Predicting the future is always difficult, but the short answer, based on current trends, it is a simple yes.
Supermajors such as Shell, BP and Total have set carbon neutral targets for their operations by 2050. Under the Paris Agreement, many countries are also aiming to reduce their carbon emissions significantly as well; even the USA, under the new Biden administration, has rejoined the accord. But carbon neutral does not mean zero carbon. It means that the net carbon emissions of a company or of a country is zero. Emissions from one part of the pie can be offset by other parts of the pie, with the challenge being to excise the most polluting portions to make the overall goal of balancing emissions around the target easier. That, in energy terms, means moving away from dirtier power sources such as coal and oil, towards renewables such as solar and wind, as well as offsets such as carbon capture technology or carbon trading/pricing. Natural gas and LNG sit right in the middle of that spectrum: cleaner than conventional coal and oil, but still ubiquitous enough to be commercially viable.
So even in a carbon neutral world, there is a role for LNG to play. And crucially, demand is expected to continue rising. If ‘peak oil’ is now expected to be somewhere in the 2020s, then ‘peak gas’ is much further, post-2040s. In 2010, only 23 countries had access to LNG import facilities, led by Japan. In 2019, 43 countries now import LNG and that number will continue to rise as increased supply liquidity, cheaper pricing and infrastructural improvements take place. China will overtake Japan as the world’s largest LNG importer soon, while India just installed another 5 mmtpa import terminal in Hazira. More densely populated countries are hopping on the LNG bandwagon soon, the Philippines (108 million people), Vietnam (96 million people), to ensure a growing demand base for the fuel. Qatar’s central position in the world, sitting just between Europe and Asia, is a perfect base to service this growing demand.
There is competition, of course. Russia is increasingly moving to LNG as well, alongside its dominant position in piped natural gas. And there is the USA. By 2025, the USA should have 107 mmtpa of LNG capacity from currently sanctioned projects. That will be enough to make the USA the second-largest LNG exporter in the world, overtaking Australia. With a higher potential ceiling, the USA could also overtake Qatar eventually, since its capacity is driven by private enterprise rather than the controlled, centralised approach by Qatar Petroleum. The appearance of US LNG on the market has been a gamechanger; with lower costs, American LNG is highly competitive, having gone as far as Poland and China in a few short years. But while the average US LNG breakeven cost is estimated at around US$6.50-7.50/mmBtu, Qatar’s is even lower at US$4/mmBtu. Advantage: Qatar.
But there is still room for everyone in this growing LNG market. By 2030, global LNG demand is expected to grow to 580 million tons per annum, from a current 360 mmtpa. More LNG from Qatar is not just an opportunity, it is a necessity. Traditional LNG producers such as Malaysia and Indonesia are seeing waning volumes due to field maturity, but there is plenty of new capacity planned: in the USA, in Canada, in Egypt, in Israel, in Mozambique, and, of course, in Qatar. In that sense, it really doesn’t matter which country holds the crown of the world’s largest exporter, because LNG demand is a rising tide, and a rising tide lifts all 😊