Indonesia's oil and gas sector slumps, falling to 3% of nation's GDP

Indonesia's oil and gas sector slumps, falling to 3% of nation's GDP

Once a cornerstone of the economy, Indonesia's oil and gas sector is in a
slump, even as the country's appetite for energy soars.

Hit by a drop in global prices, changing regulations and competition from
neighbours that are proving more attractive to international energy
companies, South-east Asia's biggest economy is facing a decline in oil
revenue and steadily rising fuel imports.

With an economy growing at a 5 per cent clip and the government embarking on
a vast infrastructure roll-out, the oil and gas industry is sounding alarm
bells over the decline of a sector that five years ago accounted for almost
6 per cent of Indonesia's gross domestic product (GDP) but, last year,
contributed only 3 per cent.

"There seems to be a lack of long-term vision," said Mr Tony Regan, an
independent oil and gas consultant based in Singapore. "There seems to be an
acceptance that oil production is declining rather than saying we can turn
this around."

Investment for exploration in Indonesia shrank to US$100 million (S$137
million) last year from US$1.3 billion in 2012, according to government
data. A lack of drilling success and commercialisation issues have weakened
Indonesia's outlook, and spending is likely to drop further, said Mr Johan
Utama, a South-east Asia oil analyst with Wood Mackenzie.

During the days of former president Suharto, Indonesia pumped about 1.5
million barrels of oil a day. Now, oil traders and executives complain of a
dearth of exploration and "stagnant" investment. Part of that is caused by
the drop in oil prices to around US$45 from the heady days of more than
double that amount earlier this decade.

But Indonesia's oil explorers are feeling the pinch worse than most, said Mr
Regan. "Indonesia has a reputation as being a difficult place to do
exploration and development... because of the sheer difficulty in getting
approvals and permits, and moving forward."

The decline has also reduced the industry's contribution to state coffers,
which accounted for a quarter of the government's revenue a decade ago. Last
year, that had fallen to 3 per cent.

Indonesia's Energy and Mineral Resources Minister Ignasius Jonan said in
April that the government was planning for expansion and aimed to lure as
much as US$200 billion in investment over the next decade, offering
incentives such as tax-free import of drilling equipment and simpler cost
recovery.

Oil exploration and production spending worldwide is forecast to increase by
3 per cent this year to around US$450 billion, with some neighbouring
countries leading the rebound, according to Mr Utama.

"We're expecting a healthy jump of investment in the near term in Brunei,
India, Malaysia and Vietnam. The total upstream spend for Malaysia in 2018
is expected to grow about 20 per cent compared with 2017," Mr Utama said.

The constantly changing regulatory environment "paints a picture of
Indonesia as not being a stable place" for exploration, he said.

Indonesia is now a net importer of oil and will "potentially be a net
importer of gas by 2020", said Mr Sacha Winzenried, a partner at PwC in
Indonesia specialising in energy, utilities and mining.

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Link to Original Article:
http://www.straitstimes.com/business/indonesias-oil-and-gas-sector-slumps-fa
lling-to-3-of-nations-gdp

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com