indonesia oil&gas sector outlook 2011

Indonesia Oil & Gas Sector Outlook

2011

Media Briefing

Energy Practice, Frost & Sullivan

Jakarta

30th March 2011

Indonesia Outlook

Oil & Gas Sector: Market Trends

Table of Contents

Contents

Introduction1

2

3

Introduction

1 Introduction

Source: Compiled by Frost & Sullivan

• 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


Dynamics of Oil Pricing

2 Oil & Gas Sector: Market Trends

Unrest spreads to Saudi Arabia

$ 175/barrel

ME & NA unrest ends

$ 100/barrel

Unrest in North Africa & Middle East

(NA & ME) Continues

$ 125/barrel

• OPEC’s opinion is that oil supplies are constrained in the

current situation

• Saudi Arabia is the main anchor for global oil supply and

price stability

ME & NA unrest ends. Demand falls in

weak economies

$ 75/barrel

140

110

80

50

20

15

108

Crude Oil Spot Price (all Countries)

2011200820042000

Oil Price Forecast Scenarios

1

2

3

4

Indonesia maintains fuel stock for 22 days

Indonesia sources most of its crude from

Saudi Arabia and Singapore

Has agreement with neighboring

countries for oil supply incase situation in

the Middle East worsens

NA & ME Flare-up: Minimal Impact on

Indonesia’s oil supply

120

US$/b


Major Emerging Trends


Key Trend 1: Strong Demand Driving Prices Up

Middle East & North Africa

unrest impacts supply and

adds to speculationJapan catastrophe to

increase gas demand

Strong Demand from

Asia

Shallow-water & Mature

Onshore Fields Depleting

Domestic Demand Versus

Import Commitments

Need to increase exploration

efforts and work mature fields

harder

Crude oil prices increase

driving up subsidy bill

Indonesia




Increased Cost of Exploration

Gas Projects Gain

Prominence

Challenge to Attract

Investments

Tough Regulatory

Environment after Macondo

& Montara Incidents

Need to enact and enforce

regulations in tune with the

international standards

Incentives for oil & gas majors

to invest in Indonesia

Key Trend 2: Exploration & Production Move to Deeper Waters

Indonesia

Key fields in Indonesian Waters

Terang/Sirasun: 150 – 300 meters water depth

Gehem and Gendalo: 1070 to 1830 meters

West Seno expansion: 953 meters

Aton: 1,150 metersDeepwater Definition

• Deepwater: + 3000 ft (900 m)

• Ultra Deepwater: + 7000 ft (2100 m)

Cabotage Law revision

exempting O&G vessels a

positive step

Under Development

First Oil/Gas: 2014


2

Environmental Impact Controversies Restraining

Growth of the Industry

Coal Seam Gas (CSG)/CBM to LNG Projects to

Attract Investment

Key Trend 3: Emergence of Unconventional Gas as a Viable Option

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 world's 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.


2

The gas reserves in relation to the size of the individual fields

There are around 6000 fields with

reserves less than 5 trillion cubic

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

TCF

Indonesia has identified 52 marginal fields (oil & gas) for development

Key Trend 4: Development of Marginal Fields




Reserves & Upstream Expenditure

3 Indonesia OutlookT

rill

ion

Cu

bic

Mete

rs

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2002 2003 2004 2005 2006 2007 2008 2009 2010

Oil Proved Reserves

Th

ou

sa

nd

Mil

lio

n B

arr

els

• More gas provinces to

increase proven natural gas

reserves

• Unconventional gas to add to

reserves

• More investments in gas

projects

• Falling Oil Reserves

• Oil projects are more

complex now

Total Upstream Exploration & Production Expenditure in Indonesia for 2011

is forecast to be US$ 17 billion.1TCM=35.3TCF

3

Offshore Drilling and Completion Capex (US $M) by Country 2009 -2012

Indonesia Outlook

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

Australia, India,

Indonesia and Malaysia –

large Investments in

Drilling and Completion

0

200

400

600

800

1000

1200

1400

2009 2010 2011 2012

$ M

illi

on

Philippines

Malaysia

Indonesia

India

China

Australia



Oil Production & Consumption

3 Indonesia Outlook

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

The demand for oil is expected to ease as natural gas

increasingly substitutes oil in the power sector

US$ 10 billion is needed to halve

the current oil usage and to

replace it with gas

Oil


Oil Production Outlook

3 Indonesia Outlook

Oil Production Targets

• To meet these two targets,

E&P investments and good

project management

become important

• Data acquisition

techniques are necessary

for new discoveries

Source: BP MIGAS

954

MBOPD – 1000 Barrels per Day

Actual

(MBOPD)920* 920*

• Oil Production to decrease

or at best stay at current

levels in 2011 and 2012

• Forecast


Natural Gas Production and Consumption

3 Indonesia Outlook

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

Source: BP; Graphic: Mazamascience

Low price of existing export contracts.

Existing contracts, especially with China, are at $3

per mmbtu; compared to market rate of $6 per

mmbtu


Natural Gas Production Outlook

3 Indonesia Outlook

Gas Production Targets

Source: BP MIGAS

• 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


LNG Exports Outlook

3 Indonesia Outlook

• Donngi-Senoro LNG to export 70 to 75% of

its produce. Chubu Electric of Japan will be

the off-taker

• 2009 Imports: 25.92 BCM

• 2010 Imports at 2009 levels

• 2011 imports levels to decrease

LNG Exports: Traditional Markets for Indonesian LNG

Exports

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

• Japan has committed up to $52.9 billion in

infrastructure investments over the next 15

years in Indonesia

Offshore Potential

3 Indonesia Outlook

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

10 TCF Reserves; water

depth 300m to 1000m

Inpex to invest $ 4.9 billion

For floating LNG plant (2.5

mmtpa) with production

start-up in 2016

Makassar Strait

Gehem, Gendalo, Gandang, Maha and Bangka fields

Chevron to developing East Kalimantan deepwater fields,

Gehem and Gendalo.

Invest ment $ 7 to 8 billion.

Plan Of Development approved

Source: Planning Dept, Govt of Indonesia; Petroleum Geo-Services ; Compiled by Frost & Sullivan

Shallow Water

• Bukit Tua

Deep Water

• Gehem

• Gendalo

• INPEX Masela FLNG

• Petramina FSRU

Prospective FPSO Projects


Floating Storage Re-gas Storage Units (FSRU) Projects

3 Indonesia Outlook

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

Location : Belawan, North Sumatra

Start up plan : 2013-14

Capacity : 3 MTPA


Refining Outlook

3 Indonesia Outlook

KEY ISSUES

• Finding Foreign Investors is crucial

• Low Complexity of most Indonesian

Refineries. Need to be upgraded to meet

EURO III or EURO IV standards

• Extremely low return on investment.

Investors need IRRs of 15% . Government

needs to provide incentives to boost

returns on investment

• Extremely low margin on sales of oil

products in Indonesia

1000

1020

1040

1060

1080

1100

1120

1140

1160

1180

2001 2002 2003 2004 2005 2006 2007 2008 2009

Refining Capacity

Th

ou

sa

nd

Barr

els

per

Day

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)


Oil Subsidies Across the World

3 Indonesia Outlook

Nigeria

India

Indonesia

Malaysia

China

Iran

Chile Others....

Most Emerging Nations have Oil

SubsidiesMany developed countries continue to provide

direct producer subsidies to oil companies

These nations account for more than

70% of the oil demand increase

Oil exporting countries subsidize fuel to citizens

encouraging wastage

These countries also finance projects that are not

fuel friendly

Canada provides over $2 billion per year to oil

companies

European Union provided $8 billion in

subsidies to oil companies in 2009

U.S. producer subsidies reached $52 billion in

2009


Cost of Global Oil Subsidies

3 Indonesia Outlook

With increasing oil prices and budget deficits, most

countries are considering removing subsidies

Global Subsidy Bill

Global Subsidy is directly related to oil prices; higher

the prices, higher the subsidy

Removal of Subsidy will benefit China, India and Oil Producers most

100

200

300

400

500

Billio

n D

ollars

$558

$312

$250

Oil Price

Global Subsidy

bill


Impact of Removal of Oil Subsidies in Indonesia

3 Indonesia Outlook

Removal of subsidy has an inflationary effect in the short term

Higher prices for Petrol, Diesel, Kerosene and other refined oil

products

Oil demand will increase at a slower pace

Budget deficit dramatically reduces; so Government has more

funds for development

Subsidies not sustainable in the long run It is inevitable that subsidies will be gradually phased out in Indonesia


Opportunities Along the Value Chain

Exploration &

DevelopmentRefining

Downstream

Distribution

3 Indonesia Outlook

Upstream

Production

Rejuvenate

Brown Fields

Step Up

Exploration

Efforts

Increase

Refining

Capacity

Phase Out

Subsidies

Bring Projects

Onstream as

Scheduled

Development

of Marginal

Fields

Upgrade

Existing

Facilities

Strengthen

Domestic Gas

Network

Infrastructure

• Investment in Petroleum,

CBM and Shale Gas

acreages

• Marginal field development

• FPSO

• FLNG

• Marine Support Vessels

• Brownfield services

• Decommissioning

Services

• Refinery products and

services

• Project investment

• Gas Network

Infrastructure

• Retail Infrastructure for

non-subsidised fuel

• Addition of gasoline retail

stations

Action Ite

ms

Op

port

unitie

s

Dewi NurainiCorporate Communications

Indonesia

Phone : (021) 571.0838 / 571.3246

Email : [email protected]

For Additional Information

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