PETROMINDO wake up call for Indonesia energy.
PETROMINDO wake up call for Indonesia energy. [Posted 5 Dec 2015, 110 views, 10 likes, 5 comments]
At the Petomindo’s Coal Asia 5th birthday party, a short talk was presented by some key industry speakers. The talk was in bahasa Indonesia, and only hand written notes & some photos of slides were taken. I apologize for any mistakes or omissions.
1 Aussie Gautama – expert staff with Pertamina. This talk was supported by a number of excellent slides prepared by an international industry consultant.
- Emerging insights for Indonesia’s energy outlook – all overviews based on projected growth in energy demand, as needed for Indonesia’s development. However crude oil & gas imports will need new infrastructure.
- There is expected to be a significant growing supply gap in oil & gas. In 2015 Indonesia is expected to import 800,000bpd (barrels per day) and using an average price of $50/b is $40 million per day and represents about 10% of Indonesia’s total imports for 2016. By 2030 the crude import is expected to be 1,900,000bpd, and at $50 /b is an import of $95 million per day (this represents many ships per day).
- Java is expected to remain the biggest gas deficient region while new supplies are expected in Papua, Kalimantan & Sulawesi. There are 4 major oil & gas developments in the pipe line, with ENI in operation, while Inpex, Chevron & BP projects are all delayed due to slow permitting.
- Strong growth in power generation is expected and will create opportunities in coal & geothermal.
- Conclusion ;
- Shortage of oil & gas is going to become more critical.
- Decision makers slow to make decisive action to access new oil & gas discoveries.
- Coal may be able to partially substitute other forms of energy shortfalls.
- Renewables and Geothermal are bound to fail if no policy changes implemented.
- Comment & Discussion.
- Indonesia will NOT solve the energy crisis by itself, and cabinet should prepare for worst case.
- There is a big question if renewables can fulfill their energy mix requirements, for example Coal Bed Methane has practically no present output, yet is scheduled to be a big producer.
- The present Government delay over floating platform gas process, or pipe to onshore reflects politicians lack of understanding. The gas will first need to be partially processed (moisture taken out) before it can be piped, thus need some processing – then piping before more processing!! The off shore floating process proposal includes considerable local content for the “topside” construction, and will need the upgrading of local ship fabrication yards at Batam etc. The multiplier effect of this construction is huge. If the government institutes permitting delays it can have a knock on effect to re-do feasibility & environmental studies, re assigning project financing etc leading to up to 4 years delays
- Indonesia is in an energy crisis and need prompt and decisive action otherwise many energy targets will be missed.
- Need to consider moving back to legislature that worked in the past, including regulation 871 and re introduce “lex specialist” for oil/gas/energy projects. The close monitoring and high degree of compliance needs to be balanced with accelerating the projects – thus criminalization issues should be down sized. For example China did not worry too much about corruption etc, until it overcame its energy crisis.
- Non conventional power may not work in the time frame, as the gap for near zero implementation to providing a significant share of Indonesia’s energy needs seems too wide.
- Pertamina is now expected to grow from an oil & gas company to include geothermal & renewable energy divisions.
- Need to have more government agencies admit there is an energy crisis.
- Agung Wicaksono – Vice Chairman UP3KN (program management office for the 35 GW electricity program) in the Ministry of Energy & Mineral Resources. This talk was accompanied by a number of excellent slides.
- Power deficit across Indonesia, with 2 zones having adequate power, 3 zones near adequate and the remaining 8 zones with significant under capacity with an overall present short fall of 6,214 MW.
- The 35 GW program needs US$ 72.9 billion to prevent a crisis. This investment is to build 291 power plants, 732 transmission lines (75,000 towers) and 1,375 substations, and include 301,300 km of aluminum conductors, 2,600 set trafo & 3.5 million ton of steel. This program will directly employ 650,000 people (indirect about 3 million) with about 40% contribution from local industry (US$ 29.2 billion).
- The power plant construction is scheduled for the 2015 – 2019 period is for the 35 GW plus outstanding 7.4 GW from previous incomplete programs. The implementation phase is unrealistically expected to develop more rapidly towards 2019.
- PLN has to deal with 8 other ministries & key government agencies [Government Guarantee, BKPM, MEMR, BPN, Forestry, Trade, Local Government, Bappanas ] plus others. The UP3KN unit (about 10 people) reports to the President & Vice President – it is like a P3K (first aid box) operation in A) project management & reporting, 2) regulatory analysis, 3) de-bottle-necking & pushing the various parties to perform and 4) general affairs.
- In a recent official launching of a wind power project observed by the president, Jokowi firmly instructed all officials present that they need to show real progress (particularly in the first 2 months) or there will be consequences.
- There are 8 major challenges for the 35 GW power project; 1) land acquisition, 2) tariff negotiations, 3) selection & appointment of IPP, 4) permit issuance, 5) performance of contractor & developer, 6) project management capability, 7 cross sectoral coordination, 8) legal bases.
- The land acquisition issue at PLTU Cirebon will be a “test” for the new regulations, PLN performance and the Jokowi government. There are about 5 families with 12 ha that have stopped this major project for about 5 years.
- There are recent changes to the energy mix plan. Previously PLN would provide 10,233 MW and IPP provide 25,305MW, to now PLN 5,000MW and IPP 30,000MW. Also changes in the energy mix from coal 63%, gas 32% and renewables 5% to Coal 50%, gas 25% and renewables 25%.
- These power programs are not a target but a necessity.
- Comment & Discussion
- Note that the BKPM new “one stop service” is not a “one service then stop” – as many more permits are needed to conduct business.
- Some 5,800 MW of mostly coal fired power stations have been signed to date, with the target of signing 10,000 – 16,000 MW by the end of the year, and the remainder early next year.
- It is unlikely that the renewable (including geothermal & wind) targets will be achieved in the time frame. An example is that biomass power plants need electricity prices of around 15cents/Kw.
- The schedule seems unrealistic, as banks will not invest until land is cleared (typically takes 2 years), and then finance takes another 1 year before a 3-4 year construction phase.
- Some finance options have their own timetable & complications. The Japanese projects require coordination with Bank of Japan, and that has its own schedule. Thus should PLN quickly go ahead without Japanese bidders?
- The 2019 national election period is the political push for fast progress.
- Achmad Reza (coal economist) spoke on the coal industry (no slides), wherein his general comments reflect a common outlook on the coal industry. The China boom is over, hoping for India to grow imports from Indonesia. Main new growth is to come from the domestic 35 GW power sector. The determination of coal price based on a number of international indexes is under review, wherein some people hope for a domestic price and a different export price. The concept of limiting export ports to 7 points is not acceptable to some of the coal industry. All predictions are that coal production & exports will be less for 2016.
- Post Script- The Jakarta Post (5 Dec) reported that Indonesia will import 40% of its oil needs in 2018, and has proven oil reserves of 3.7 billion barrels at end of 2015.