Energy Analytical Update: Petamina Management Change, Increased Production Targets Among Efforts to Reduce Indonesia's Energy Imports

Energy Analytical Update | December 11, 2019
Authors: Riley Smith and Jacob Corfman
Energy Analytical Update: Petamina Management Change, Increased Production Targets Among Efforts to Reduce Indonesia's Energy Imports

Seeking to help reduce Indonesia’s current account deficit by cutting back on crude oil imports, President Joko “Jokowi” Widodo is overhauling the management of Pertamina, the state-owned oil company, and has set ambitious domestic exploration and production targets over the next decade. Given that the monthly energy import bill eclipses that of all other imports combined, Jokowi sees it as a fundamental drag on the Indonesian economy and a trend that is preventing it from reaching his target 7 percent annual growth.

On November 22, Jokowi appointed former Governor of Jakarta – and Jokowi’s previous Deputy Governor of Jakarta – Basuki Tjahaja Purnama, often referred to as Ahok, as the new president commissioner of Pertamina. The appointment came just shy of a year since Ahok was released from prison after being convicted in 2017 of committing blasphemy during a contentious reelection campaign.

In addition to Ahok’s appointment, President Jokowi has pushed SKK Migas, Indonesia’s Upstream Oil and Gas Regulatory Task Force, to increase oil and gas production targets from the current target of 750,000 barrels per day (bbl/d) to 1 million bbl/d by 2030. Part of this target is to come from 42 new oil and gas projects that will collectively require US$43.3 billion in total investment. Jokowi is also aiming to double domestic refining capacity to 2 million bbl/d by 2026 by opening six refineries, at a cost of around US$60 billion, as well as increasing the amount of locally-produced biofuel in diesel from 20 percent to 30 percent.

The appointment of Ahok, a close ally of Jokowi, is seen as a way to ensure that Pertamina can achieve its ambitious targets while reportedly improving oversight of the state-owned company, even though Jokowi’s efforts during his first term to reduce oil imports are just now starting to have an effect. According to Statistics Indonesia (BPS), the volume of imported oil and gas from January to October of this year was down nearly 20 percent year-on-year, with imports reaching 32.9 million tons. This significant drop in oil and gas imports is a consequence of policies that Jokowi enacted during his first term, such as requiring all private oil companies to sell their crude output to Pertamina, a move which reduced crude oil exports by just over 67 percent year-on-year between January and October.

Jokowi also pushed for the implementation of a new upstream regulatory regime that was intended to be simpler than past regimes. Called the gross-split production sharing contract (PSC), the regulatory regime has coincided with a modest uptick in investment in Indonesia’s upstream oil and gas sector, from US$10.1 billion in 2017 to US$11.9 in 2018, a bump with which the Indonesian government readily credits the new regime. However, the gross split PSC may yet undergo further changes to address companies’ issues with the scrapped cost-recovery mechanism. The Council’s Take in the most recent Energy Update goes into more detail on this topic.

Though Indonesia’s crude oil output has shrunk from a peak of 1.6 million bbl/d in 1995 to 808 bbl/d in 2018, marking a new low, the discovery this past February in the Sakakemang block indicates that some of Jokowi’s domestic production goals might be achievable, to a degree. Jointly operated by Spain’s Repsol, Malaysia’s Petronas, and Japan’s Mitsui Oil Exploration (MOECO), the find is believed to contain

2 trillion cubic feet of natural gas, making it the largest gas discovery in Indonesia within the last 18 years, and one of the top 10 discoveries within the last two years. Even with this discovery, as well as the Masela block, the Jambarang Tiung Biru field, and the Tangguh field, Pertamina estimates that Indonesia will still face an LNG deficit as demand rises due to power plant projects, petrochemical projects, and refinery projects.