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With total reserves of 453 trillion cubic feet (TCF), or
about 81.5 billion barrels of oil equivalent, Indonesia has the largest
coal-bed methane (CBM) deposits in the world after China.
CBM -- natural gas formed by the activity of microbes during the
coal-forming process, and trapped amid coal beds -- could be a godsend
for Indonesia as it struggles to cope with the depletion of its oil
reserves and rising demand.
Under its new energy policy, the government has decided to gradually
decrease the country's dependence on oil, and increase the use of other
energy alternatives, such as gas and coal, to meet future energy
demands.
By 2025, Indonesia's energy mix is expected to consist of 30 percent
gas, 33 percent coal, 20 percent oil and 17 percent renewable energy.
At present, oil accounts for 51.66 percent of total energy use,
followed by gas at 28.57 percent, coal at 15.34 percent and renewable
energy at 4.5 percent.
The potential to develop CBM is there, but it will be difficult for
investors to take advantage of the opportunities due to the lack of
clear regulations governing the exploitation of the costly gas deposits.
The government has already issued a ministerial decree in an effort to
address the energy shortfall. But, potential investors still regard the
regulation as being far from enough as it has nothing to say about
much-needed incentives to help with the high cost of exploiting CBM
deposits, or support in overcoming possible conflicts with coal miners.
The Energy and Mineral Resources' oil and gas director general, Luluk
Sumiarso, said the regulation places a high priority on the production
of CBM.
"We are all aware of the gas evaporation problem, so the operators will
be urged to exploit the gas first, and then the coal," Luluk told
reporters during a recent workshop on CBM exploration and production in
Nusa Dua, Bali.
However, many investors have expressed doubts about the policy, arguing
that the regulation does not specifically refer to a production-sharing
scheme for CBM production.
In response, Upstream Oil and Gas Regulatory Agency (BP Migas) chairman
Kardaya Warnika said that the government was considering offering a
split of 70 percent to 30 percent in favor of the investor.
This would be much more favorable than the split in the case of regular
gas production, which is 35 percent for the investor and 65 percent for
the government.
Regarding the government's mooted 70:30 split, Kun Kurnely, the
president director of Pertamina's exploration and production
subsidiary, Pertamina EP, said it would not be enough unless the
government also offered tax incentives to potential investors.
"In addition, the government should also give investors a kind of tax
holiday of up to 10 years, as is the case in Australia," said Kun.
While many investors are still awaiting further clarity before becoming
involved in CBM, others have progressed to the feasibility-study stage.
PT Pertamina, local company Ephindo, and Shell have all been conducting
feasibility studies on CBM production in South Sumatra, Jambi and
Sangatta since late 2006.
Pertamina, together with Indonesia's third biggest oil and gas
producer, PT Medco EP and the government's oil and gas research and
development center (Lemigas) signed a memorandum of understanding Jan.
25 for a CBM pilot project, also in South Sumatra, which has potential
reserves of 183 tcf.
"We started the original pilot project on a small scale back in 2003 in
one of Medco's fields, Lapangan Rambutan, to convince investors that
the potential is there," Lemigas director Hadi Purnomo told the Post.
The government has also drawn up a detailed plan for CBM exploitation,
setting out a production target of 1 billion standard cubic feet per
day (BCF), or about 0.18 million barrels of oil equivalent, by 2025.
In the nearer term, the government hopes to attract up to US$2.5
billion in investment to develop 90 wells and produce 100 million cubic
feet per day (MMSCFD) by 2014.
But before that, the government hopes that initial production of 10
MMSCFD will come onstream by 2011, based on an investment of $600
million.
Hadi said there are currently 10 investors that have expressed an
interest in the sector, including U.S.-based oil major Chevron, local
firm Ephindo, and Philippines-based Trans-Asia Oil and Energy
Development Corporation.
"We are still waiting for the business model that will be applied by
the government, not to mention clarification of the production-sharing
contract mechanism," Chevron Pacific Indonesia president director
Suwito Anggoro told the Post.
Indonesia lags far behind other countries, including Australia, in
exploiting CBM. The neighboring country commenced commercial CBM
production in 1996 in Queensland, which has reserves of 250 TCF.
Giving the stance adopted by the government to date, potential
investors will likely have to adopt a wait-and-see approach, meaning
that it will probably be a long time before Indonesia can benefit from
its vast CBM resources.
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