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    Organisational and regulatory   david braithwaite (formatted) Organisational and regulatory david braithwaite (formatted) Presentation Transcript

    • Gas Development Master PlanOrganisational and Regulatory ChallengesConsensus Building WorkshopPresented by:David J. Braithwaite – President DirectorPT. Q Energy South East AsiaShangri-La Hotel, Jakarta21 June 2012
    • Overview• Regulatory developments: recent• Regulatory developments: likely to occur soon• Summary of regulatory challenges across gas supply chain• Organisational complexity• Examples of how these have constrained gas development• Conclusions 2
    • Regulatory Developments: Recent LAW/REGULATION IMPACT ON GAS DEVELOPMENTMinister EMR Regulation 5 of 2012 Positive: provides regulatory certainty forProcedure for Determining and Offering Non- development of shale gas (as well as CBM)Conventional Oil and Gas Work AreasPresidential Instruction 2 of 2012 Positive: if new incentives given for gas as well asNational Crude Oil Production Increase oilBP Migas annoucement of increase in PSC gas Positive: for upstreamwell-head prices 2012 Negative: (short-term) for downstream?(Migas regulation to follow soon?) Negative (for competing with coal):Presidential Regulation 61 of 2011 Energy sector only expected to contribute 4.1% ofNational Action Plan to Reduce GHG Emissions total reduction and gas to contribute 0.4% through CNG for public transport Negative: may discourage future gas explorationGovt. Reg No. 79 of 2010 as challenges sanctity of the PSC?Cost Recovery and Income Tax in Upstream (IPA’s petition for judicial review to Supreme CourtBusiness Sector was denied)Minister EMR Decree 3 of 2010 Positive: provides clarity on how gas to be usedPriorities for Domestic Gas Utilisation but likely to constrain industry growth 3
    • Regulatory Developments: Recent LAW/REGULATION IMPACT ON GAS DEVELOPMENTMinister EMR Regulation 19 of 2010 Positive: should increase likelihood ofUtilisation of Natural Gas as Gas Fuel for infrastructure being built and gas supply beingTransportation Purposes made available Positive: as provides data on gas supply andMinister EMR Decree 2010 demand by region but how up to date is it: 2011The Indonesia Gas Balance 2010 - 2025 update not yet releasedMinister EMR Decree No 0225 of 2010 Positive: if implemented, but lacks detail onMaster Plan for National Natural Gas Distribution assumptions made for defining pipeline routesand Transmission Network 2010 - 2025 and distribution areasPresidential Instruction No 1 of 2010 Positive: if implemented includes floating LNGExecution of National Development Priorities regas terminal in W. Java, N. Sumatra and E. Java(including gas infrastructure) 4
    • Regulatory Developments: Likely to Occur Soon? LAW/REGULATION IMPACT ON GAS DEVELOPMENTRevision of 2001 Oil and Gas Law- National Oil Company first right to operate Negative: creates significant uncertainty expired PSC’s?- Strengthening the gas DMO?Fiscal incentives to increase oil and gas production Positive: if incentives extended to gas(prompted by Presidential Instruction 2 of 2012) Positive: focus on using gas domestically, thoughNew Energy Policy 2011 – 2025 share in energy mix declines to 15% in long term. Energy pricing may include environmental costs. Positive: potentially more gas available forAcceleration of gas flaring elimination domestic use #) To follow (reviewing policy still) 5
    • Summary of Regulatory challenges/ Uncertainties Across Gas Supply ChainUpstream - Domestic gas pricing(Exploration and Production) - PSC extensions - Cost recovery - PSC terms for gas in deepwater/remote areas - DMO expectation - Gas flaring eliminationMidstream - Permitting(Gas Transmission Pipelines/FSRU’s) - Land access - Pipelines: regulated Rate of Return for transmission and distribution - Gas Master Plan: process for updating - FSRU’s: - Project implementation uncertainty - LNG supplyDownstream - Gas competing with subsidised oil(Gas Distribution) products/LPG - Gas supply - Delineation of distribution areas in Gas Master Plan 6
    • Organisational ComplexityConstraining Gas Development• Many Government institutions influencing gas development• Some potential institutional overlap in responsibilities (e.g. upstream gas pricing)• Institutions may have different priorities• Some institutions announce new policies and targets but these are not always followed by detailed implementation plans• Apparent lack of one single institution empowered to decide on and implement a fully integrated gas supply chain development plan 7
    • Key Regulatory Institutions: Gas Supply Chain MEMR/MIGASUPSTREAM BPMIGAS MEMR/MIGASMIDSTREAM BPH MIGAS MEMR/MIGASDOWNSTREAM BPH MIGAS 8
    • Government Institutions Influencing Gas Supply Chain Development MINISTRY OF FINANCE NATIONAL BAPPENAS ENERGY COUNCIL COORD MINISTER MINISTRY OF ECONOMY PUBLIC WORKS MEMR/MIGAS BP MIGAS MINISTRY OF HOME AFFAIRS REGENTS/ GAS MAYORS SUPPLY CHAIN MINISTRY OF TRANSPORTATION GOVERNORS BPH MIGAS MINISTRY OF AGRICULTURE CHAIRMAN OF NATIONAL LAND BOARD MINISTRY OF FORESTRY MINISTRY OF SOES MINISTRY OF ENVIRONMENT MINISTRY OF LAW AND HR MINISTRY OF INDUSTRYItemised inPresidential Instruction No. 2 of 2012 9
    • Examples of a Lack of Co-ordinationIn Government Gas Policy Implementation• In 2012 Minister of State-Owned Enterprises announced that the FSRU dedicated for the new LNG regas plant in Medan should be re-located to Lampung (and Medan’s gas needs would be met by a pipeline from Aceh), despite the FSRU project being itemised in the 2010 Presidential Instruction “execution of national development priorities”• Issuance in 2010 of a regulation for widespread use of gas for transportation, but subsidy on premium gasoline and diesel oil remains unchanged• Announcement in 2010 by Minister EMR: gas distribution pipelines to be built to meet household needs in several cities, but LPG for residential used is still subsidised• 2011 at PLN Muara Tawar Steam Power Plant in Bekasi (1350 MW), only 7 of the 12 gas turbines were able to use gas, as PGN was not able to supply the full volume committed, as government has in turn allocated 100 mmscfd of this gas to another user (to Chevron’s Duri field in Riau) 10
    • Examples of Pipelines Not Being BuiltThe following completion dates were set by the Government for gas transmissiongas pipeline projects Length Capacity PROJECT Completion (KM) (MMSCFD)Grissik – W. Java 661 400 2007Duri – Medan 521 250 2007E. Kalimantan – C. Java 1,219 1,100 2007/2010E. Java – W. Java 680 350 2008/2010To date only the Grissik to West Java pipeline has been completed 11
    • Examples of Gas Demand Not Being MetDue to Lack of Gas Pipelines• Forum for Nat Gas User Industries has for a long time highlighted the lack of gas for its member companies. For instance ceramics industries could only produce 5 million m2 per day of their 6.5 million m2 capacity, due to lack of gas supply• A few days ago PLN issued a warning of possible black- outs occuring in Jakarta to a shortage of gas from the newly-commissioned FSRU in Jakarta 12
    • ConclusionsSeveral factors appear contribute to the current lack of the gas supplyand gas infrastructure• Regulations not being fully implemented• Conflicting energy policies being pursued• Many institutions can have an impact on gas supply development but no single institution is empowered to have final say on defining and implementing an integrated gas supply chain development plan• Infrastructure project developers need commitments from both gas suppliers and gas users before proceeding, which to date have been very difficult to secure (and pipeline rates of return are regulated)• Domestic gas prices are increasing significantly which may attract more gas producers to sell into the domestic market but how will domestic users see the long term competitiveness of gas versus coal in the power sector, and versus subsidised oil products, and LPG in the transport and household sectors? 13