Oil and Gas Sector Still Holds an Important Role for Future Energy Supply

The Indonesian Government continues to accelerate the transition to renewable energy to secure domestic energy supply. Indonesia is set to pursue a renewable energy portion of 23% in the national energy mix in 2025. The declining oil and gas reserves in the last few years have pushed the Government to swiftly develop renewable energy resources.

Minister of Energy and Mineral Resources Arifin Tasrif has stated that the transition to renewable energy cannot happen overnight. Indonesia can’t stop using fossil energy resources yet because it is still needed to drive national economic growth. Therefore, the oil and gas sector still holds an important role in securing national energy supply.

“We can’t stop using fossil energy yet, it needs time and several steps to be completed, because we still need continuous energy supply to drive our economic growth,” he said.

Though oil and gas production is declining, he believes that Indonesia still has abundant resources to be developed. According to the energy ministry’s data, Indonesia has oil reserves of 3,7 billion barrels and 77 trillion cubic feet (TCF) of gas. Moreover, in the next couple years, the Masela Block will commence gas production to provide additional supply for domestic demand.

“We have big gas potential and there is also a shift in oil and gas development from western to eastern parts of Indonesia. We will develop big gas reserves in East Indonesia, and one of these is the Masela Block,” Arifin stated.

To attract more investment in the national oil and gas sector, Arifin said that the government will offer two options in terms of oil and gas contract schemes in the next oil and gas blocks bidding rounds, namely PSC gross split and PSC cost recovery,. “We had introduced cost recovery scheme previously and then shifted to the gross split scheme, but it turns out that the gross split scheme is not attractive enough for investors,” he said.

Executive Director of the Reforminer Institute Komaidi Notonegoro stated that oil and gas development is still needed, though renewable energy development is getting better. It is because it still needs years to ensure that renewable energy development is large enough to supply domestic demand. On the other hand, the oil and gas sector is an established business with a complete and mature infrastructure.

“The oil and gas sector is still important, though renewable energy development is moving forward. It can be easily shifted just like that,” he said.

According to the Energy Ministry’s data, the renewable energy portion in the 2019 national energy mix was only 8.8%, while this year it is expected to rise to 13.4%, still far from the government’s target of 23% in 2025.

In the fuel sector, the use of biodiesel has only risen from 6.3 million kilo liter (KL) last year to 10 million KL this year, to compensate for diesel consumption of 30 million KL. While last year fuel consumption reached as high as 96.97 million KL. For the energy mix in 2025, crude oil still holds a portion of 24.7% or around 2 million barrel oil per day, with the gas portion at 22.3% or 1.81 million boepd.