This document summarizes a presentation on regulatory and organizational challenges facing gas development in Indonesia. Recent regulations have both positive and negative impacts on the gas supply chain. Key challenges include domestic gas pricing, PSC terms, and the lack of a coordinated gas development plan across government institutions. Examples show a lack of implementation for announced gas infrastructure projects and demand not being met. Overall, conflicting policies and a lack of single decision authority on gas development planning have contributed to current gas supply and infrastructure shortfalls.

1. Gas Development Master Plan
Organisational and Regulatory Challenges
Consensus Building Workshop
Presented by:
David J. Braithwaite – President Director
PT. Q Energy South East Asia
Shangri-La Hotel, Jakarta
21 June 2012

2. 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
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3. Regulatory Developments: Recent
LAW/REGULATION IMPACT ON GAS DEVELOPMENT
Minister EMR Regulation 5 of 2012
Positive: provides regulatory certainty for
Procedure for Determining and Offering Non-
development of shale gas (as well as CBM)
Conventional Oil and Gas Work Areas
Presidential Instruction 2 of 2012 Positive: if new incentives given for gas as well as
National Crude Oil Production Increase oil
BP Migas annoucement of increase in PSC gas
Positive: for upstream
well-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% of
National Action Plan to Reduce GHG Emissions total reduction and gas to contribute 0.4% through
CNG for public transport
Negative: may discourage future gas exploration
Govt. 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 Court
Business Sector
was denied)
Minister EMR Decree 3 of 2010 Positive: provides clarity on how gas to be used
Priorities for Domestic Gas Utilisation but likely to constrain industry growth
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4. Regulatory Developments: Recent
LAW/REGULATION IMPACT ON GAS DEVELOPMENT
Minister EMR Regulation 19 of 2010 Positive: should increase likelihood of
Utilisation of Natural Gas as Gas Fuel for infrastructure being built and gas supply being
Transportation Purposes made available
Positive: as provides data on gas supply and
Minister EMR Decree 2010
demand by region but how up to date is it: 2011
The Indonesia Gas Balance 2010 - 2025
update not yet released
Minister EMR Decree No 0225 of 2010 Positive: if implemented, but lacks detail on
Master Plan for National Natural Gas Distribution assumptions made for defining pipeline routes
and Transmission Network 2010 - 2025 and distribution areas
Presidential Instruction No 1 of 2010
Positive: if implemented includes floating LNG
Execution of National Development Priorities
regas terminal in W. Java, N. Sumatra and E. Java
(including gas infrastructure)
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5. Regulatory Developments: Likely to Occur Soon?
LAW/REGULATION IMPACT ON GAS DEVELOPMENT
Revision 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, though
New 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 for
Acceleration of gas flaring elimination
domestic use
#) To follow (reviewing policy still)
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6. Summary of Regulatory challenges/
Uncertainties Across Gas Supply Chain
Upstream - Domestic gas pricing
(Exploration and Production) - PSC extensions
- Cost recovery
- PSC terms for gas in deepwater/remote
areas
- DMO expectation
- Gas flaring elimination
Midstream - 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 supply
Downstream - Gas competing with subsidised oil
(Gas Distribution) products/LPG
- Gas supply
- Delineation of distribution areas in Gas
Master Plan
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7. Organisational Complexity
Constraining 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
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8. Key Regulatory Institutions: Gas Supply Chain
MEMR/MIGAS
UPSTREAM BPMIGAS
MEMR/MIGAS
MIDSTREAM BPH MIGAS
MEMR/MIGAS
DOWNSTREAM BPH MIGAS
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9. 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
SOE'S MINISTRY OF
ENVIRONMENT
MINISTRY OF
LAW AND HR MINISTRY OF
INDUSTRY
Itemised in
Presidential Instruction No. 2 of 2012
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10. Examples of a Lack of Co-ordination
In 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)
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11. Examples of Pipelines Not Being Built
The following completion dates were set by the Government for gas transmission
gas pipeline projects
Length Capacity
PROJECT Completion
(KM) (MMSCFD)
Grissik – W. Java 661 400 2007
Duri – Medan 521 250 2007
E. Kalimantan – C. Java 1,219 1,100 2007/2010
E. Java – W. Java 680 350 2008/2010
To date only the Grissik to West Java pipeline has been completed
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12. Examples of Gas Demand Not Being Met
Due 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
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13. Conclusions
Several factors appear contribute to the current lack of the gas supply
and 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?
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