The Indonesian state oil firm now has its third CEO in two years, as Nicke Widyawati was confirmed as the new CEO and President Director of the company last week. Widyawati – the second female head of Pertamina after Karen Agustiawan – replaces Elia Massa Manik, who himself replaced Dwi Soetjipto in February 2017. In ascending to the top post, Widyawati is an example of female empowerment in Indonesia, but the position itself is a bit of a poisoned chalice. How long will she last?
Widyawati’s predecessor Manik came in with the best of intentions – promoting transparency and promising to overhaul Pertamina’s creaking upstream and downstream operations. He mostly failed, perhaps not through a lack of willpower but political reality, where the government is caught between a quixotic need to promote a nationalistic policy on resources yet in dire need of foreign investment. Worse, the state has no patience, demanding immediate results. An energy industry in terminal decline requires a long time to turnaround, and balancing that with the government’s demands will be Widyawati’s greatest challenge.
What has Pertamina achieved over the past week years? Well, there is some sign of progress – after repeatedly reaching out and rebuffing investors over refining downstream investments aimed to reducing a chronic dependence on fuel imports, some small steps forward seem to be emerging in the Bontang, Cilacap and Tuban projects, partnering with Saudi Aramco, Rosneft, Oman Oil and Cosmo Oil. That isn’t enough to please the government, though, which is dealing with a downward spiral of the Indonesian rupiah that has prompted several dramatic measures – including the immediate adoption of a hard B20 biodiesel mandate to reduce imports of gasoil and boost consumption of domestic palm oil.
In upstream, however, the trajectory is definitely backwards. Indonesia is moving in an alarming direction of resource nationalisation, scuppering plans to make its upstream sector friendlier to foreigners. Since 2015, any PSC involving international companies have been handed back to Pertamina, or at the very least seen Pertamina’s share increased. The government believes that by increasing Pertamina’s share, more crude will be made available for domestic refining. That logic works in the short term, but in the long term is scaring off firms like Total, Chevron and ExxonMobil, who not only contribute valuable capital, but also the technical know-how that Pertamina lacks.
The Rokan and Mahakam blocks have already been handed back to Pertamina and last week, the state announced that all oil contractors must sell their entire crude output to Pertamina, effectively blocking them from exporting any oil. The aim is to support the weakening rupiah and reduce imports, but the longer term damage to the confidence and health of the industry could be affected badly. Nicke Widyawati may be proving that the Indonesian glass ceiling has been smashed through, but expectations are high and demands unrealistic. Don’t be surprised if Pertamina receives another CEO next year.
A recent timeline of Pertamina CEOs:
- September 2014: Karen Agustiawan resigns as CEO
- November 2014: Dwi Soetjipto appointed CEO for the period 2014-2019
- February 2017: Dwi Soetjipto fired as CEO, Elia Massa Manik appointed interim CEO
- Marchj 2017: Elia Massa Manik confirmed as CEO
- April 2018: Elia Massa Manik sacked, Nicke Widyawati appointed interim CEO
- August 2018: Nicke Widyawati confirmed as CEO
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A month ago, crude oil prices were riding a wave, comfortably trading in the mid-US$70/b range and trending towards the US$80 mark as the oil world fretted about the expiration of US waivers on Iranian crude exports. Talk among OPEC members ahead of the crucial June 25 meeting of OPEC and its OPEC+ allies in Vienna turned to winding down its own supply deal.
That narrative has now changed. With Russian Finance Minister Anton Siluanov suggesting that there was a risk that oil prices could fall as low as US$30/b and the Saudi Arabia-Russia alliance preparing for a US$40/b oil scenario, it looks more and more likely that the production deal will be extended to the end of 2019. This was already discussed in a pre-conference meeting in April where Saudi Arabia appeared to have swayed a recalcitrant Russia into provisionally extending the deal, even if Russia itself wasn’t in adherence.
That the suggestion that oil prices were heading for a drastic drop was coming from Russia is an eye-opener. The major oil producer has been dragging its feet over meeting its commitments on the current supply deal; it was seen as capitalising on Saudi Arabia and its close allies’ pullback over February and March. That Russia eventually reached adherence in May was not through intention but accident – contamination of crude at the major Druzhba pipeline which caused a high ripple effect across European refineries surrounding the Baltic. Russia also is shielded from low crude prices due its diversified economy – the Russian budget uses US$40/b oil prices as a baseline, while Saudi Arabia needs a far higher US$85/b to balance its books. It is quite evident why Saudi Arabia has already seemingly whipped OPEC into extending the production deal beyond June. Russia has been far more reserved – perhaps worried about US crude encroaching on its market share – but Energy Minister Alexander Novak and the government is now seemingly onboard.
Part of this has to do with the macroeconomic environment. With the US extending its trade fracas with China and opening up several new fronts (with Mexico, India and Turkey, even if the Mexican tariff standoff blew over), the global economy is jittery. A recession or at least, a slowdown seems likely. And when the world economy slows down, the demand for oil slows down too. With the US pumping as much oil as it can, a return to wanton production risks oil prices crashing once again as they have done twice in the last decade. All the bluster Russia can muster fades if demand collapses – which is a zero sum game that benefits no one.
Also on the menu in Vienna is the thorny issue of Iran. Besieged by American sanctions and at odds with fellow OPEC members, Iran is crucial to any decision that will be made at the bi-annual meeting. Iranian Oil Minister Bijan Zanganeh, has stated that Iran has no intention of departing the group despite ‘being treated like an enemy (by some members)’. No names were mentioned, but the targets were evident – Iran’s bitter rival Saudi Arabia, and its sidekicks the UAE and Kuwait. Saudi King Salman bin Abulaziz has recently accused Iran of being the ‘greatest threat’ to global oil supplies after suspected Iranian-backed attacks in infrastructure in the Persian Gulf. With such tensions in the air, the Iranian issue is one that cannot be avoided in Vienna and could scupper any potential deal if politics trumps economics within the group. In the meantime, global crude prices continue to fall; OPEC and OPEC+ have to capability to change this trend, but the question is: will it happen on June 25?
Expectations at the 176th OPEC Conference
Global liquid fuels
Electricity, coal, renewables, and emissions
Source: U.S. Energy Information Administration, U.S. liquefaction capacity database
On May 31, 2019, Sempra Energy, the majority owner of the Cameron liquefied natural gas (LNG) export facility, announced that the company had shipped its first cargo of LNG, becoming the fourth such facility in the United States to enter service since 2016. Upon completion of Phase 1 of the Cameron LNG project, U.S. baseload operational LNG-export capacity increased to about 4.8 billion cubic feet per day (Bcf/d).
Cameron LNG’s export facility is located in Hackberry, Louisiana, next to the company’s existing LNG-import terminal. Phase 1 of the project includes three liquefaction units—referred to as trains—that will export a projected 12 million tons per year of LNG exports, or about 1.7 Bcf/d.
Train 1 is currently producing LNG, and the first LNG shipment departed the facility aboard the ship Marvel Crane. The facility will continue to ship commissioning cargos until it receives approval from the Federal Energy Regulatory Commission to begin commercial shipments. Commissioning cargos refer to pre-commercial cargo loaded while export facility operations are still undergoing final testing and inspection. Trains 2 and 3 are expected to come online in the first and second quarters of 2020, according to Sempra Energy’s first-quarter 2019 earnings call.
Cameron LNG has regulatory approval to expand the facility through two additional phases, which involve the construction of two additional liquefaction units that would increase the facility’s LNG capacity to about 3.5 Bcf/d. These additional phases do not have final investment decisions.
Cameron LNG secured an authorization from the U.S. Department of Energy to export LNG to Free Trade Agreement (FTA) countries as well as to countries with which the United States does not have Free Trade Agreements (non-FTA countries). A considerable portion of the LNG shipments is expected to fulfill long-term contracts in Asian countries, similar to other LNG-export facilities located in the Gulf of Mexico region.
Cameron LNG will be the fourth U.S. LNG-export facility placed into service since February 2016. LNG exports rose steadily in 2016 and 2017 as liquefaction trains at the Sabine Pass LNG-export facility entered service, with additional increases through 2018 as units entered service at Cove Point LNG and Corpus Christi LNG. Monthly exports of LNG exports reached more than 4.0 Bcf/d for the first time in January 2019.
Source: U.S. Energy Information Administration, Natural Gas Monthly
Currently, two additional liquefaction facilities are being commissioned in the United States—the Elba Island LNG in Georgia and the Freeport LNG in Texas. Elba Island LNG consists of 10 modular liquefaction trains, each with a capacity of 0.03 Bcf/d. The first train at Elba Island is expected to be placed into service in mid-2019, and the remaining nine trains will be commissioned sequentially during the following months. Freeport LNG consists of three liquefaction trains with a combined baseload capacity of 2.0 Bcf/d. The first train is expected to be placed in service during the third quarter of 2019.
EIA’s database of liquefaction facilities contains a complete list and status of U.S. liquefaction facilities.