NrgEdge Editor

Sharing content and articles for users
Last Updated: September 2, 2017
1 view
Exploration
image

By George Barber

This is an article that I wrote recently that was published in the Jakarta Post on 31 July 2017.

There can be no doubt about the potential of Indonesia’s Energy Potential, although potential is exactly what it is. There can also be no doubt that there is a lot happening outside of the main energy sectors that are well known, i.e., oil, gas, geothermal, hydropower, some companies are going quietly about their business and trying to develop extremely complicated fields, not so much in the resource aspects, but in the geological and environmental aspects as well as the community and battling away at the regulations. 

All resource developments have their own unique challenges, especially resources that are located offshore or in onshore remote parts of this divest archipelago, most people in the resource industry accepts these challenges, these challenges can and must be met head on as part of the stages to reach the end goal, which is delivery of a resource to the end user which is commercially viable as well as ensuring that the local community’s and the county benefits.

There have been three articles published in the Jakarta Post recently that have caught my eye as follows: “Rising fuel imports stifle Pertamina”, “RI lags behind peers in renewable energy”, “ExxonMobil exit warning of waning oil, gas industry”. Surely these three headlines alone say something? Another headline stated, “Geothermal power requires incentives”. There was a publication from the Indonesian Petroleum Association (IPA) for the 41st IPA that indicated that the number of licenses required for oil and gas development had increased from 341 in 2015 to 373 in 2017 with the main increases coming from MEMR 74 (52), Transportation Ministry 76 (58), Navy 9 (2), only 4 ministries/agencies from 19 had decreased their requirements, some remained the same.

We have seen recently several companies’ that have decided enough is enough, company’s such as Marathon, Andarko, Hess and now ExxonMobile, all of these companies and more have worked in what is considered far more difficult countries to develop a business, such as Nigeria which appears to be coming more attractive than Indonesia. Every country has its ups and downs, although in Indonesia we have been seeing a steady decline of the oil & gas industry in Indonesia for many years, we can also argue the same for the mineral resource sector, the geothermal sector is struggling to gain momentum. Why is this when a country has such potential, not just with its abundance of natural resources, but also human resources?

I was making a presentation the other week to an Indonesian oil company where I was asked what is delaying you getting projects in Indonesia, my answer was, “Do you really want to know”, he said yes, I mentioned several points which included acceptance of new technology, regulations, afraid to make decisions, other comments I cannot mention in the media, they returned my reply with agreement and also added a few other comments which were not complimentary to the regulators. It appears that Indonesian companies also have difficulties working in their own country.

Therefore, the question that has to be asked is: does Indonesia want to develop its own resources? We can see in some areas they do, such as wind and tidal power, solar power not so much, in other areas such as oil & gas it appears that the easy way is to import, which appeared to be the scenario given at the opening ceremony of the 41st IPA conference in May, hence the headline “Rising fuel imports stifle Pertamina”.

 A recent study by The Habibie – Center said that the region lacks experience and expertise in capital-intensive renewable energy projects; maybe this is true, although you only gain experience by doing. Believe it or not, there are a lot of companies and people that want to help Indonesia, (not all for financial gain only), with the intent of doing business professionally and fairly, which also involves helping to solve the problem of expertise. All projects have to have local content, training must be given and allowed for in the cost of a project, not driving the price down so much that this area is reduced where the first thing that is cut when something goes wrong is training. Indonesia is extremely blessed with human resources, which in my experience, they are very efficient and in many cases can stand side-by-side with s other countries who claim to be experts at everything. So what is the problem, is it regulations?, partly yes, if we look at the intended Production Sharing Contract (PSC), it appears that very few investors and people in the industry are jumping over the moon about this, we all know that industries do not like change, but what is known, if the change is outstanding, the vast majority of industry leaders would accept this as a good idea, which makes one wonder if the PSC is a good idea in its current form, does it need more work on this to make it attractive?

The following statements were made by Pak Arie Rahmadi (BPPT), “Inconsistent regulations combined with long payback periods”; and “we change regulations on renewable energy quite often”. Why are regulations inconsistent and changed quite often? If they are good regulations, they only need fine tuning, not re-writing. Regulations should move with the times, we should not be making regulations for change sake, although this appears to be a worldwide problem with people in power at this time. If it is not broken, why fix it, preventive maintenance is needed only.

A headline in the Jakarta Post 25 July, “The President tells ministers to support business”, this article was prepared before this date. What the President stated is what is being stated in this article He also stated that the gross-spilt scheme lacks incentives, companies have said it does not have clear tax calculations.

Decision makers need to make decisions that are beneficial for the country and the investors, not be afraid to make decisions that may make them unpopular, after all, life is not a beauty contest. 


*This article was first published by George Barber and is reprinted here with full permission from the writer.

**About the Writer:
George, Director at PT Indonesia, has lived and worked in South East - Indonesia for the past 24 years, and is presently involved with innovative exploration for natural resources throughout South East Asia.

Indonesia Energy Regulations Natural Resources
3
6 1

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

Latest NrgBuzz

BP & The Expansion of the Caspian

The vast Shah Deniz field in Azerbaijan’s portion of the South Caspian Sea marked several milestones in 2018. It has now produced a cumulative total of 100 billion cubic metres of natural gas since the field started up in 2006, with daily output reaching a new peak, growing by 12.5% y-o-y. At a cost of US$28 billion, Shah Deniz – with its estimated 1.2 trillion cubic metres of gas resources – has proven to be an unparalleled success, being a founding link of Europe’s Southern Gas Corridor and coming in relatively on budget and on time. And now BP, along with its partners, is hoping to replicate that success with an ambitious exploration schedule over the next two years.

Four new exploration wells in three blocks, along with a seismic survey of a fourth, are planned for 2019 and an additional three wells in 2020. The aggressive programme is aimed at confirming a long-held belief by BP and SOCAR there are more significant pockets of gas swirling around the area. The first exploratory well is targeting the Shafag-Asiman block, where initial seismic surveys suggest natural gas reserves of some 500 billion cubic metres; if confirmed, that would make it the second-largest gas field ever discovered in the Caspian, behind only Shah Deniz. BP also suspects that Shah Deniz itself could be bigger than expected – the company has long predicted the existence of a second, deeper reservoir below the existing field, and a ‘further assessment’ is planned for 2020 to get to the bottom of the case, so to speak.

Two wells are planned to be drilled in the Shallow Water Absheron Peninsula (SWAP) block, some 30km southeast of Baku, where BP operates in equal partnership with SOCAR, with an additional well planned for 2020. The goal at SWAP is light crude oil, as is a seismic survey in the deepwater Caspian Sea Block D230 where a ‘significant amount’ of oil is expected. Exploration in the onshore Gobustan block, an inland field 50km north of Baku, rounds up BP’s upstream programme and the company expects that at least one seven wells of these will yield a bonanza that will take Azerbaijan’s reserves well into the middle of the century.

Developments in the Caspian are key, as it is the starting node of the Southern Gas Corridor – meant to deliver gas to Europe. Shah Deniz gas currently makes its way to Turkey via the South Caucasus Gas pipeline and exports onwards to Europe should begin when the US$8.5 billion, 32 bcm/y Trans-Anatolian Pipeline (TANAP) starts service in 2020. Planned output from Azerbaijan currently only fills half of the TANAP capacity, meaning there is room for plenty more gas, if BP can find it. From Turkey, Azeri gas will link up to the Trans-Adriatic Pipeline in Greece and connect into Turkey, potentially joined by other pipelines projects that are planned to link up with gas production in Israel. This alternate source of natural gas for Europe is crucial, particularly since political will to push through the Nordstream-2 pipeline connecting Russian gas to Germany is slackening. The demand is there and so is the infrastructure. And now BP will be spending the next two years trying to prove that the supply exists underneath Azerbaijan.

BP’s upcoming planned exploration in the Caspian:

  • Shafag-Asiman, late 2019, targeting natural gas
  • SWAP, 3 sites, late 2019/2020, targeting oil
  • ‘Onshore gas project’, end 2019, targeting natural gas’
  • Block D230, 2019 (seismic assessment)/2020 (drilling), targeting oil
  • Shah Deniz ‘further assessment’, 2020, targeting natural gas
January, 22 2019
RAPID Rises

When it was first announced in 2012, there was scepticism about whether or not Petronas’ RAPID refinery in Johor was destined for reality or cancellation. It came at a time when the refining industry saw multiple ambitious, sometimes unpractical, projects announced. At that point, Petronas – though one of the most respected state oil firms – was still seen as more of an upstream player internationally. Its downstream forays were largely confined to its home base Malaysia and specialty chemicals, as well as a surprising venture into South African through Engen. Its refineries, too, were relatively small. So the announcement that Petronas was planning essentially, its own Jamnagar, promoted some pessimism. Could it succeed?

It has. The RAPID refinery – part of a larger plan to turn the Pengerang district in southern Johor into an oil refining and storage hub capitalising on linkages with Singapore – received its first cargo of crude oil for testing in September 2018. Mechanical completion was achieved on November 29 and all critical units have begun commissioning ahead of the expected firing up of RAPID’s 300 kb/d CDU later this month. A second cargo of 2 million barrels of Saudi crude arrived at RAPID last week. It seems like it’s all systems go for RAPID. But it wasn’t always so clear cut. Financing difficulties – and the 2015 crude oil price crash – put the US$27 billion project on shaky ground for a while, and it was only when Saudi Aramco swooped in to purchase a US$7 billion stake in the project that it started coalescing. Petronas had been courting Aramco since the start of the project, mainly as a crude provider, but having the Saudi giant on board was the final step towards FID. It guaranteed a stable supply of crude for Petronas; and for Aramco, RAPID gave it a foothold in a major global refining hub area as part of its strategy to expand downstream.

But RAPID will be entering into a market quite different than when it was first announced. In 2012, demand for fuel products was concentrated on light distillates; in 2019, that focus has changed. Impending new International Maritime Organisation (IMO) regulations are requiring shippers to switch from burning cheap (and dirty) fuel oil to using cleaner middle distillate gasoils. This plays well into complex refineries like RAPID, specialising in cracking heavy and medium Arabian crude into valuable products. But the issue is that Asia and the rest of the world is currently swamped with gasoline. A whole host of new Asian refineries – the latest being the 200 kb/d Nghi Son in Vietnam – have contributed to growing volumes of gasoline with no home in Asia. Gasoline refining margins in Singapore have taken a hit, falling into negative territory for the first time in seven years. Adding RAPID to the equation places more pressure on gasoline margins, even though margins for middle distillates are still very healthy. And with three other large Asian refinery projects scheduled to come online in 2019 – one in Brunei and two in China – that glut will only grow.

The safety valve for RAPID (and indeed the other refineries due this year) is that they have been planned with deep petrochemicals integration, using naphtha produced from the refinery portion. RAPID itself is planned to have capacity of 3 million tpa of ethylene, propylene and other olefins – still a lucrative market that justifies the mega-investment. But it will be at least two years before RAPID’s petrochemicals portion will be ready to start up, and when it does, it’ll face the same set of challenging circumstances as refineries like Hengli’s 400 kb/d Dalian Changxing plant also bring online their petchem operations. But that is a problem for the future and for now, RAPID is first out of the gate into reality. It won’t be entering in a bonanza fuels market as predicted in 2012, but there is still space in the market for RAPID – and a few other like in – at least for now.

 

RAPID Refinery Factsheet:

  • Ownership: Petronas (50%), Saudi Aramco (50%)
  • Capacity: 300 kb/d CDU/3 mtpa olefins plant
  • Other facilities: 1.22 Gigawatt congeneration plant, 3.5 mtpa regasification terminal
  • Expected commissioning: March 2019
January, 21 2019
Forecasting Bangladesh Tyre Market | Zulker Naeen

Tyre market in Bangladesh is forecasted to grow at over 9% until 2020 on the back of growth in automobile sales, advancements in public infrastructure, and development-seeking government policies.

The government has emphasized on the road infrastructure of the country, which has been instrumental in driving vehicle sales in the country.

The tyre market reached Tk 4,750 crore last year, up from about Tk 4,000 crore in 2017, according to market insiders.

The commercial vehicle tyre segment dominates this industry with around 80% of the market share. At least 1.5 lakh pieces of tyres in the segment were sold in 2018.

In the commercial vehicle tyre segment, the MRF's market share is 30%. Apollo controls 5% of the segment, Birla 10%, CEAT 3%, and Hankook 1%. The rest 51% is controlled by non-branded Chinese tyres.

However, Bangladesh mostly lacks in tyre manufacturing setups, which leads to tyre imports from other countries as the only feasible option to meet the demand. The company largely imports tyre from China, India, Indonesia, Thailand and Japan.

Automobile and tyre sales in Bangladesh are expected to grow with the rising in purchasing power of people as well as growing investments and joint ventures of foreign market players. The country might become the exporting destination for global tyre manufacturers.

Several global tyre giants have also expressed interest in making significant investments by setting up their manufacturing units in the country.

This reflects an opportunity for local companies to set up an indigenous manufacturing base in Bangladesh and also enables foreign players to set up their localized production facilities to capture a significant market.

It can be said that, the rise in automobile sales, improvement in public infrastructure, and growth in purchasing power to drive the tyre market over the next five years.

January, 18 2019