Gas Development Master PlanSteering Committee Meeting – 28 March 2013Draft Policy Note 2 : Impediment to Developing Gas Reserves
2Outline• Overall gas balance• Infrastructure as an impediment• Other impediments• CBM• Fiscal terms• Potential for subsea wells• Recommendations
3Overall gas balance
4Overall gas balance 2012-2502.0004.0006.0008.00010.0002012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025MMSCFDNERACA GAS BUMI INDONESIA 2012-2025CONTRACTED DEMAND COMMITTED DEMAND POTENTIAL DEMAND EXISTING SUPPLY PROJECT SUPPLY POTENTIAL SUPPLY
6NAD region example – wrong operator, wrongtechnology, wrong fiscal termsJau field(ENI)• 200 bcf• 600-650m waterdepth• 45kmfrom NSOplatform
7The tendering process…• Kepodang offshore field on the Muriah licence originallydiscovered in the 1980’s in 230 feet of water. The licencewas taken over by Arco in 1999 who signed amemorandum of understanding with PLN for supply tothe Tambak Lorok combined cycle power in SemarangThe 1060MW Tambak Lorok power station wascompleted in 1998 and can run on diesel or gas• Petronas of Malaysia took over the licence in 2005 andsigned a gas sales agreement with PLN to supply 145MMSCFD of gas for ten years. Petronas were intending toconstruct a 200km pipeline from the field to shore.However the private company Bakrie and Brothers hadwon the tender to construct a main pipeline fromKalimantan to Java.
8The tendering process…• Bakrie successfully argued in 2009 that as the plannedKepodang line would run in parallel to the line and thatthey had the licence for that route that they, rather thanPetronas should provide the offshore transportation ofthe gas and operate it as Phase 1 of their longer pipelinesystem. Eventually in 2012 an overall development planwas agreed which incorporated Petronas developing thefield and Bakrie providing the offshore transportation.• Petronas is developing the field at a total cost estimatedas $545 million. Production is now planned to start inOctober 2014. Bakrie are constructing the pipeline at acost of around $175 million.• The project has effectively been delayed by three yearsdue to the lack of resolution of the transportation issue.The Petronas production sharing agreement was toexpire in 2021. As a consequence of this the governmentextended the production sharing agreement to 2025.
9Jawad Barah region – the cost of failurerunning Tampak Lorok 1000 MW on diesel
10Pertamina Gundih fields – a technicalproblem
11The technical problems• Pertamina onshore gas development taking place whichillustrates some of the technical problems in someIndonesian gas fields. Three fields are to be developedthrough a central processing plant (CPP) .• However the fields contain around 21% carbon dioxidewhich is reduced to 15% once the fields are processedthrough the CPP. It is then required to inject the carbondioxide in a suitable reservoir.• Recent study indicated that one reservoir was notcompleted sealed and could result in carbon dioxideleakage. The other potential reservoir was of insufficientsize to store the required amount of carbon dioxide. Atthis stage, therefore, there is no technical solution to thesafe disposal of the carbon dioxide.
12Jawa Timur region – successful developments• Access to pipeline infrastructure• Large reserve basis• Productive wells• Access to large customer base
13Tirang Sirasun Batar
14BD Gas field development
15Kalimantan – supply shortage?
16Kalimanatan – the problem of contract expiryand new technology but CBM has a role• The existing supply shows a very steep decline. Howeverthere is still significant potential for additional recovery inthe existing Tunu field. However this additional recoverywould require significant additional investment in newplatforms and wells. As the licence expires in four yearstime, this will not allow recovery of this investment bythe current owners.• There is a huge potential through the development byChevron of five gas fields in very depth water called theIndonesia Deepwater Development. The Bangka field in3,200 feet of water would be tied back to the existingwest Seno Floating Production Unit.• There is significant potential in the longer term for coalbed methane (CBM) projects to be further developed inKalimantan with initial production having started in 2011
18Chevron Deepwater Development
19CBM commitment wells
20CBM impedimentsThe main impediments to the successful development ofan Indonesian CBM programme appear to be thefollowing:• An number of the blocks have been awarded tocompanies without the financial, technical or operationalcapacity to carry out the work programme commitments• There is limited availability of purpose build CBM drillingrigs with conventional rigs being expensive to use andthere is a shortage of coring and formation evaluationservices• Land use applications are slow to be resolved and accessto some areas (such as forests) is difficult• There is no dedicated government authority for CBM andthe recent constitutional court ruling has further delayedthe provision of such an authority
21Indonesian fiscal terms – the model field• The field that is modelled is similar to the offshoreKepodang gas field currently being developed byPetronas in the Muriah block off Central Java.• The hypothetical field is around 180 km from shore and isin water depths of 70 metres and has reserves of 400 bcf.• The field has a central processing platform and wellheadplatform.• Total capital investment including exploration is $645million
23Government take comparison
25Policy Recommendations• The continued delay in the completion of the Kalimantan-Javapipeline has contributed to a gas shortage in Java. It has alsoprevented the development of fields on the route of thepipeline meaning that expensive oil rather than gas has beenused in a major power plant. The Government shouldundertake an immediate investigation into the failure of thetender process in getting this pipeline constructed.• The Government has failed to develop a workable policy onhow to deal with contract expiries. As Indonesia was the firstcountry to use PSC arrangements it is not surprising,therefore, that it is the first country to have to deal with theirexpiry. The failure of the Government to deal with this issuehas led directly to a reduction in development with a resultantreduction in gas production. Resolution of this issue shouldbe an immediate requirement of the Government
26Policy Recommendations• The major companies are particularly strong in deliveringcomplex massive developments. However they are weakin developing smaller incremental reserves adjacent totheir major developments. The Government shouldconsider re-licensing undeveloped discoveries toindependent international companies as well as to localcompanies with sufficient technical and financialresources.• There appears to be a lack of use in modern technologysuch as subsea wells in Indonesia. The Governmentshould consider setting up a specific technical instituteto support the development of this type of work.
27Policy Recommendations• Although in general the Consultant has found thatIndonesian fiscal terms are regionally competitive itshould consider where appropriate in offering betterterms for particularly difficult projects such as thoseinvolving gas with a high CO2 content.• The Consultant is proposing that a dedicatedGovernment authority for CBM be set up both tosupport this emerging industry but also to resolvedevelopment issues