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Indonesia Oil&Gas Sector Outlook 2011


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Frost & Sullivan analysis of the Indonesia Oil and gas Sector Outlook 2011

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Indonesia Oil&Gas Sector Outlook 2011

  1. 1. Indonesia Oil & Gas Sector Outlook 2011 Media Briefing Energy Practice, Frost & Sullivan Jakarta 30th March 2011
  2. 2. Table of Contents 1 Introduction 2 Oil & Gas Sector: Market Trends 3 Indonesia OutlookContents
  3. 3. 1 Introduction Introduction • The objective of this presentation will be to: • Cover the Emerging Trends in the Oil & Gas Industry • Present F&S’ Perspective on Indonesia’s Oil & Gas Outlook for 2011 • Key takeaway: Global and Indonesian Oil & Gas Trends Source: Compiled by Frost & Sullivan
  4. 4. 2 Oil & Gas Sector: Market Trends Dynamics of Oil Pricing Oil Price Forecast Scenarios • OPEC’s opinion is that oil supplies are constrained in the current situation 1 Unrest spreads to Saudi Arabia • Saudi Arabia is the main anchor for global oil supply and $ 175/barrel price stability 2US$/b Unrest in North Africa & Middle East (NA & ME) Continues Crude Oil Spot Price (all Countries) $ 125/barrel140 120 3 108 ME & NA unrest ends110 $ 100/barrel80 ME & NA unrest ends. Demand falls in 4 weak economies $ 75/barrel50 NA & ME Flare-up: Minimal Impact on Indonesia’s oil supply Indonesia sources most of its crude from20 Saudi Arabia and Singapore Indonesia maintains fuel stock for 22 days15 Has agreement with neighboring 2000 2004 2008 2011 countries for oil supply incase situation in the Middle East worsens Source: Compiled by Frost & Sullivan
  5. 5. 2 Oil & Gas Sector: Market Trends Major Emerging TrendsKey Trend 1: Strong Demand Driving Prices Up Strong Demand from Asia Middle East & North Africa unrest impacts supply and Japan catastrophe to adds to speculation increase gas demand Indonesia Shallow-water & Mature Domestic Demand Versus Onshore Fields Depleting Import Commitments Crude oil prices increase driving up subsidy bill Need to increase exploration efforts and work mature fields harder Source: Compiled by Frost & Sullivan
  6. 6. 2 Oil & Gas Sector: Market Trends Major Emerging Trends Key Trend 2: Exploration & Production Move to Deeper Waters Indonesia Need to enact and enforce regulations in tune with the international standards Tough Regulatory Environment after Macondo Challenge to Attract & Montara Incidents Investments Increased Cost of Exploration Incentives for oil & gas majors to invest in Indonesia Gas Projects Gain Prominence Cabotage Law revision exempting O&G vessels a positive step Key fields in Indonesian Waters Terang/Sirasun: 150 – 300 meters water depth Under Development Gehem and Gendalo: 1070 to 1830 meters First Oil/Gas: 2014Deepwater Definition West Seno expansion: 953 meters• Deepwater: + 3000 ft (900 m) Aton: 1,150 meters• Ultra Deepwater: + 7000 ft (2100 m) Source: Compiled by Frost & Sullivan
  7. 7. 2 Oil & Gas Sector: Market Trends Major Emerging TrendsKey Trend 3: Emergence of Unconventional Gas as a Viable Option Coal Seam Gas (CSG)/CBM to LNG Projects to Attract Investment Environmental Impact Controversies Restraining Growth of the Industry Commercial production of CBM is still at a nascent stage in Indonesia • The total CBM reserves in Indonesia is estimated to be 450 TCF • This is more than double its natural gas reserves and the worlds second largest CBM reserves after China. • At least 10 percent of these reserves can be extracted economically Production Start-up in 2011; to be supplied to domestic power plants • By 2015, Indonesia’s total production of unconventional gas to reach 100 million cubic feet per day • By 2020, unconventional gas production to reach 500 million cubic feet per day • Unconventional gas and CBM are expected to account for 30.0 percent of Indonesia’s energy mix in 2025 Shale Gas Exploitation is a Possibility • Indonesia is estimated to have shale gas reserves of 1000 TCF • Shale gas can be produced in Indonesia by 2018 provided right steps are taken for harnessing this energy resource. Source: Compiled by Frost & Sullivan
  8. 8. 2 Oil & Gas Sector: Market Trends Major Emerging TrendsKey Trend 4: Development of Marginal Fields There are around 6000 fields with reserves less than 5 trillion cubic The gas reserves in relation to the size of the individual fields feet (TCF). Most of them are considered stranded fields Stranded gas reserves refer to the natural gas, which have been discovered but cannot be developed due to their location disadvantage or negative economics of getting the natural gas delivered to the marketplace About 40% of global natural gas reserves are located far from the shores and are classified as stranded • Floating LNG Terminals (FLNG) can monetize stranded reserves held in over 2500 gas fields containing 0.1 to 5 trillion TCFIndonesia has identified 52 marginal fields (oil & gas) for development Source: Compiled by Frost & Sullivan
  9. 9. 3 Indonesia Outlook Reserves & Upstream Expenditure Oil Proved Reserves 6.0 Thousand Million BarrelsTrillion Cubic Meters 5.0 4.0 3.0 2.0 1.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 • More gas provinces to increase proven natural gas reserves • Falling Oil Reserves • Unconventional gas to add to • Oil projects are more reserves complex now • More investments in gas projects Total Upstream Exploration & Production Expenditure in Indonesia for 2011 1TCM=35.3TCF is forecast to be US$ 17 billion. Source: Compiled by Frost & Sullivan
  10. 10. 3 Indonesia Outlook Offshore Drilling and Completion Capex (US $M) by Country 2009 -2012 1400 1200 1000 Philippines Malaysia $ Million 800 Indonesia 600 India China 400 Australia 200 Australia, India, 0 Indonesia and Malaysia – 2009 2010 2011 2012 large Investments in Drilling and Completion Country 2009 2010 2011 2012 2009-2012 Australia 240 400 300 375 1315 China 40 40 0 70 150 India 180 230 140 270 820 Indonesia 135 135 230 235 735 Malaysia 250 120 320 230 920 Philippines 30 60 70 75 235 Total 875 985 1060 1255 4175 Source: Compiled by Frost & Sullivan
  11. 11. 3 Indonesia Outlook Oil Production & Consumption Oil Oil Exporter turned Importer • Increasing domestic demand • Falling domestic production Remediation • Brownfields to be rejuvenated • More exploration to improve reserves • Reduce demand Source: BP; Graphic: Mazamascience US$ 10 billion is needed to halveThe demand for oil is expected to ease as natural gas the current oil usage and toincreasingly substitutes oil in the power sector replace it with gas Source: Compiled by Frost & Sullivan
  12. 12. 3 Indonesia Outlook Oil Production Outlook Oil Production Targets • To meet these two targets, MBOPD – 1000 Barrels per Day E&P investments and good project management become important • Data acquisition techniques are necessary for new discoveries • Oil Production to decrease Source: BP MIGAS Actual or at best stay at current(MBOPD) 954 920* 920* levels in 2011 and 2012 • Forecast Source: Compiled by Frost & Sullivan
  13. 13. 3 Indonesia Outlook Natural Gas Production and Consumption Natural Gas • Domestic natural gas consumption is on the increase • Power Sector to see surge in gas demand • Demand from other end users also to increase Low price of existing export contracts. Source: BP; Graphic: Mazamascience Existing contracts, especially with China, are at $3 per mmbtu; compared to market rate of $6 per mmbtu Source: Compiled by Frost & Sullivan
  14. 14. 3 Indonesia Outlook Natural Gas Production Outlook Gas Production Targets • If this potential is not realized, • Indonesia is likely to be a net gas importer by 2021 Bringing projects onstream on time assumes importance if all contracted commitments and projected demand increase are to be met Source: BP MIGAS Source: Compiled by Frost & Sullivan
  15. 15. 3 Indonesia Outlook LNG Exports Outlook LNG Exports: Traditional Markets for Indonesian LNG Exports • Donngi-Senoro LNG to export 70 to 75% of its produce. Chubu Electric of Japan will be the off-taker • Japan has committed up to $52.9 billion in infrastructure investments over the next 15 years in Indonesia • 2009 Imports: 25.92 BCM • 2010 Imports at 2009 levels • 2011 imports levels to decrease Trends • Imports volume to reduce in due course. LNG exports will fall to 362 cargoes in 2011 from 427 in 2010. • Net gas importer by 2021 unless new projects come onstream Source: Compiled by Frost & Sullivan
  16. 16. 3 Indonesia Outlook Offshore Potential Deepwater Potential: Tarakan basin; Papalan Basin Thrust from Government for faster development of gas projects for meeting domestic and export gas demand East Kalimantan Masela Block Prospective FPSO Projects 10 TCF Reserves; water depth 300m to 1000m Shallow Water Inpex to invest $ 4.9 billion• Bukit Tua For floating LNG plant (2.5 mmtpa) with production start-up in 2016 Deep Water• Gehem Makassar Strait• Gendalo Gehem, Gendalo, Gandang, Maha and Bangka fields Chevron to developing East Kalimantan deepwater fields,• INPEX Masela FLNG Gehem and Gendalo.• Petramina FSRU Invest ment $ 7 to 8 billion. Plan Of Development approved Source: Planning Dept, Govt of Indonesia; Petroleum Geo-Services ; Compiled by Frost & Sullivan
  17. 17. 3 Indonesia Outlook Floating Storage Re-gas Storage Units (FSRU) Projects Location : Belawan, North Sumatra Start up plan : 2013-14 Capacity : 3 MTPA Location : Jakarta Bay, West Java Start up plan : 2012 Capacity : 3 MTPA Contractor : Golar LNG Energy Location : East Java Start up plan : 2013-14 Capacity : 2-4 MTPA Source: Compiled by Frost & Sullivan
  18. 18. 3 Indonesia Outlook Refining Outlook Refining Capacity KEY ISSUESThousand Barrels per Day 1180 1160 • Finding Foreign Investors is crucial 1140 1120 • Low Complexity of most Indonesian 1100 Refineries. Need to be upgraded to meet 1080 EURO III or EURO IV standards 1060 1040 • Extremely low return on investment. 1020 Investors need IRRs of 15% . Government 1000 needs to provide incentives to boost 2001 2002 2003 2004 2005 2006 2007 2008 2009 returns on investment • Extremely low margin on sales of oil products in Indonesia Plans to add 750,000 b/d of refining capacity (both by way of expansion and new builds) by 2014. This is now not feasible with in that timeframe given the delay in financing. • Cilacap refinery 60,000 b/d Residue Fluid Catalytic Cracker (2013) • Balikpapan capacity extension 40,000 b/d (2014) • Dumai refinery 50,000 b/d (2014) • Balongan 200,000 b/d (2014) • New Banten Bay refinery 300,000 b/d (2015) • Tuban refinery 200,000 b/d (2017) • Pare Pare refinery 300,000 b/d (2011) Source: Compiled by Frost & Sullivan
  19. 19. 3 Indonesia Outlook Oil Subsidies Across the World Most Emerging Nations have Oil Subsidies Many developed countries continue to provide direct producer subsidies to oil companies China India U.S. producer subsidies reached $52 billion in 2009 Nigeria Indonesia European Union provided $8 billion in Malaysia Iran subsidies to oil companies in 2009 Chile Others.... Canada provides over $2 billion per year to oil companies Oil exporting countries subsidize fuel to citizens These nations account for more than encouraging wastage 70% of the oil demand increase These countries also finance projects that are not fuel friendly Source: Compiled by Frost & Sullivan
  20. 20. 3 Indonesia Outlook Cost of Global Oil Subsidies Global Subsidy Bill Global Subsidy is directly related to oil prices; higher the prices, higher the subsidy Oil Price Billion Dollars 500 $558 400 300 $312 Global Subsidy bill 200 $250 100 With increasing oil prices and budget deficits, most countries are considering removing subsidies Removal of Subsidy will benefit China, India and Oil Producers most Source: Compiled by Frost & Sullivan
  21. 21. 3 Indonesia Outlook Impact of Removal of Oil Subsidies in IndonesiaSubsidies not sustainable in the long run It is inevitable that subsidies will be gradually phased out in Indonesia Higher prices for Petrol, Diesel, Kerosene and other refined oil products Budget deficit dramatically reduces; so Government has more funds for development Removal of subsidy has an inflationary effect in the short term Oil demand will increase at a slower pace Source: Compiled by Frost & Sullivan
  22. 22. 3 Indonesia Outlook Opportunities Along the Value Chain Upstream Downstream Exploration & Production Refining Distribution DevelopmentAction Items Step Up Increase Phase Out Rejuvenate Exploration Refining Subsidies Brown Fields Efforts Capacity Development Bring Projects Strengthen of Marginal Onstream as Upgrade Domestic Gas Fields Scheduled Existing Network Facilities Infrastructure • Brownfield services • Refinery products and • Retail Infrastructure for • Investment in Petroleum, non-subsidised fuel • Decommissioning servicesOpportunities CBM and Shale Gas • Addition of gasoline retail acreages Services • Project investment stations • Marginal field development • Gas Network • FPSO Infrastructure • FLNG • Marine Support Vessels Source: Compiled by Frost & Sullivan
  23. 23. For Additional Information Dewi Nuraini Corporate Communications Indonesia Phone : (021) 571.0838 / 571.3246 Email :