Upstream Oil and Gas Industry Efforts to Reach 1 Million BOPD & 12 BSCFD : Governing The Ungovernable Unusual Business

Indonesia is a country with a population equivalent to 3.51% of the total world population. A large population makes Indonesia the fourth most populous country in the world. According to this, it is very important to continue to improve economic development in order to maintain sustainable economic growth and to fulfil domestic needs. Prior to the crisis caused by the COVID-19 pandemic, Indonesia had made huge gains in poverty alleviation by successfully cutting the poverty rate by more than half since 1999, to 9.78% in 2020. In addition, Indonesia was able to maintain consistent economic growth, thus ultimately qualify Indonesia to be a country with upper-middle income status. In order to support Indonesia's economic growth, ensuring the running of operations in various industrial sectors is important to support the running of the existing economy activity.

"Indonesia’s proven oil reserves could run out in nine-and-a-half years if no new oil can be found" - Arifin Tasrif, The Energy and Mineral Resources Minister (ESDM)

The level of energy availability is one of the important factors that greatly influences the fulfilment of domestic needs and supports economic development carried out by various industrial sectors. The polemic about when fossil energy, especially oil, will run out has become a widely heard warning, especially in Indonesia. Fossil energy, in the form of oil and natural gas, still be the main resource to be used in various industries. But in fact, until now Indonesia still imports oil and gas to meet domestic needs. Based on data from the Ministry of Trade of the Republic of Indonesia, the oil and gas trade balance in May 2021 was a deficit of USD 1.13 billion while the oil and gas import figure stood at USD 2.06 billion, an increase compared to the oil and gas import figure in May 2020, which was USD 0.66 billion(*). Meanwhile, if viewed from the production side, historically hydrocarbon production in Indonesia is now dominated by gas production while oil production has continued to decline since reaching its peak in 1998. In the period 2012-2019, oil production in Indonesia declined by 0-3%, when in 2019 the achievement of national oil and condensate production reached 745.1 thousand BOPD or decreased by 29.96 thousand BOPD compared to the production achievement in 2018 which was 772.1 thousand BOPD.

The downward trend in production that occurs from year to year is inseparable from the condition of the production field, which generally has entered the mature phase. Current condition is in line with the decreasing number of oil and gas working areas. Based on data from SKK Migas Annual Report in 2019, the number of oil and gas working areas has decreased since 2013. There were 199 working areas that was recorded in 2019, a decrease from the previous year of 216 working areas. Taking into account this downward trend, efforts to increase production are urgently needed, especially since production from the fields in the working area currently has the potential to decline due to the relatively mature field and also massive efforts to develop alternative energy industries.

Reflecting on these various evaluations, new vision is needed for the upstream oil and gas industry in Indonesia. The production target of 1 million BOPD  and 12 BSCFD by 2030 is the vision launched by Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi to increase the number of domestic production. Judging from the potential of oil and gas reserves, Indonesia still has a lot of potential which can support the achievement of this vision. The number of 128 basins in Indonesia, of which 20 are producing basins while 68 basins have not been explored, is evidence that Indonesia still has the opportunity to get production gains. The addition of the number of oil and gas working areas can be another effort to change this downward trend. The change in the status of the working area from the exploration stage to the exploitation stage is a solution that also can be chosen to increase domestic oil and gas production.

So what first needs to be done to support the achievement of this target? Governing the ungovernable is the key. Seen from the domestic context, as a developing country that still relies heavily on fossil-based fuels especially petroleum, Indonesia needs to improve systems and policies to address the challenges faced by the upstream oil and gas industry today. According to the explanation of Dwi Soetjipto, Head of Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi, it is known that the oil and gas industry is currently facing the challenge of complicated licensing and overlapping central and regional regulations which can certainly make difficulties for field development in certain areas. It is no stranger that the management of oil and gas fields for production is sometimes constrained by obstacles in the area of operation, such as land acquisition constraints which can further slowdown the oil and gas monetization process. Legal certainty and flexibility in the fiscal system are needed to further facilitate the development of operations and production in existing oil and gas fields. One other thing to be concerned, especially in the development of the current digital era, is related to the availability of data. Improving the availability of data is still a big homework for the Indonesian government. The role of data accuracy is quite important in decision making, not least in the oil and gas industry.

In addition to domestic issues, factors that also influence the development of Indonesia's upstream oil and gas industry are certainly inseparable from the current global conditions. The Covid-19 pandemic, which resulted in an imbalance between supply and demand, finally became one of the factors for oil price fluctuations. For the first time in history, the world is witnessing a very extreme downward trend in oil prices, where the price of crude oil futures contracts for WTI touched a price of minus USD 37.63. As the oil prices continue to fluctuate, various oil and gas companies try to prepare strategies for managing existing field operations. Not a few large oil and gas companies, such as ExxonMobil, Shell, Chevron, BP, Eni, have decided to cut their investment, especially in the exploration and development of new fields. The trend of intensive global investment towards renewable energy and various countries that provide more attractive fiscal facilities for the oil and gas industry have made global financing for upstream oil and gas investment more limited and competitive. Of course, this condition has an impact on the portion of investment entering Indonesia which is also getting smaller.

In response to domestic and global challenges, four strategies were implemented in an effort to achieve 1 Million BOPD & 12 BSCFD by 2030, such as maintaining existing production levels, accelerating resources and becoming oil and gas reserves, accelerating the implementation of Enhanced Oil Recovery (EOR), and encouraging massive exploration activities. These various efforts should be based on changes mindset that current upstream oil and gas industry is no longer an ordinary business. Reflecting on the successful efforts in another countries, such as relying on technology, expanding to frontier locations, improving fiscal policy, being open to FDI, and improving the business climate in an integrated manner, can be served as a benchmark for oil and gas industry in Indonesia in developing a new paradigm to improve domestic oil and gas production. Opportunities for the development of upstream oil and gas activities can only occur with continuous exploration activities and supported by the stakeholders involved.

"Always expect the unexpected. The oil and gas industry is terrible at predicting anything. Always have a back-up plan." 

Oil and gas industry as an industry with high risk, high technology, and high cost always be faced by uncertainty. All the stakeholder involved in this industry must be able to have capability in overcoming the unexpected. There is no exception, this also applies to the upstream oil and gas industry in Indonesia. Indonesia needs to take the momentum by changing approaches and policies that are more consistent to bring back our country as an upstream oil and gas investment destination. The courage to make a breakthrough that makes the risk-and-reward concept fulfilled is the key to the emergence of a new business scheme that is different from the usual and there is also a more well-organized policy scheme so that the Indonesian upstream oil and gas industry can be revived and achieve the shared vision that has been proclaimed to realize national energy security, namely the effort to reach 1 Million BOPD & 12 BSCFD by 2030.

(*) temporary data