Reportage | Indonesia

Indonesia: An archipelago of opportunities

Energy overview by Marco Cossu

If Jakarta wants to be one of the big oil players

Indonesia went back to being a member of OPEC in 2015 and then in 2016 it definitively abandoned the Organization amidst the many doubts of analysts who no longer considered it one of the major crude oil exporters. It is one of the main exporters of coal, but it is thinking about a future in which renewables and gas will play an important role.

 

Indonesia, the only country in South-East Asia that was part of the Organization of 14 Petroleum Exporting Countries, is the largest archipelago country in the world with 17,508 islands. It has confirmed oil reserves (according to Eni's World Oil&Gas Review) of 3,497 million barrels and is ranked in 20th place among the world's oil producers, accounting for 1.1 percent of global production. It is also one of the major producers of gas, with confirmed reserves of 2,775 billion cubic meters. But in spite of energy growth having been influential in the past, the production of both oil and gas has constantly fallen since 2010 and the situation is particularly serious in the case of the former. Oil production in particular has dropped from 993 thousand barrels per day in 2010 to 822 thousand barrels per day in 2015. This sharp fall is the result of various factors, on the one side the reserves that are easiest to develop are decreasing, on the other side the economic expansion of the main South-East Asian economy has given a strong boost to the "nationalism of resources".

Progress in the sector

In the publication Energy Policies Beyond IEA Countries: Indonesia 2015, the International Energy Agency (IEA) recognizes how Indonesia has made giant strides in the energy sector, even if it is a long way off from total independence or getting back to being one of the major exporters of resources. According to the IEA, the country is actually strengthening the governance and transparency of the energy institutions and state-owned companies, reducing fuel subsidies and facilitating investment in infrastructures. Energy subsidies - continues the IEA - are at the core of the challenge for the development of the Indonesian energy sector. In its report, the agency recognizes the progress made in reducing subsidies for fossil fuels, in 2016 expenditure stood at 1 percent of the GDP compared with 3 percent in 2014. Results in the energy sector have been impressive: a constant increase in the installed capacity, the partial opening of the electricity sector and a substantial increase in the electrification rate. But to avoid an electricity shortage, the country must act immediately, increasing investments in generation and distribution transmission.

An energy mix undergoing transformation

Energy generation from fossil fuels currently accounts for over one third of the total energy mix and is viable thanks to generous subsidies, especially in the past, from the government: Indonesia has spent around USD 59 billion on fuel, decidedly more than on healthcare and infrastructures. According to IEA data, in 2013 the country was the fourth largest exporter of LNG in the world, after Qatar, Malaysia and Australia, and has a large geothermal potential that has yet to be developed. In recent years foreign trade levels have remained high and in 2015 the country exported 34.21 billion cubic meters of gas. Lastly, the country also has enormous coal reserves and is the number one exporter in the world: it exports approximately 30 billion tons according to the Ministry of Energy and Mines. There is also a strong focus on alternative energy, with Indonesia striving for a production quota from renewable sources of around 23 percent. The most promising resource appears to be hydroelectric power, which, in 2015 produced 5,198 MW (source: IRENA). In order to sustain cleaner energy sources and the transition to renewable sources, the country has sought and is currently seeking significant investments in infrastructures. One of the companies that has invested heavily in the exploitation of underground resources is the Italian company Eni, which has been operating in the country since 2001. Operations are concentrated in the eastern offshore area and onshore in East Kalimantan, offshore on the island of Sumatra and onshore/offshore in West Timor and West Papua. Indonesia is home to one of the largest liquefaction plants in the world, in Bontang, and the LNG produced is then exported to Japan, South Korea and Taiwan. Among the major development operations in the area, the Jangkrik project in offshore Kalimantan is particularly important, while the latest most significant discovery took place in the East Sepinngan offshore block.