• Type: Business and industry issue
  • Date: 7/4/2013


Indonesia Energy
Although Indonesia continues to invest in unconventional blocks to boost future domestic production levels, shale gas development is still at an early stage and the country will need to import gas for the next 5-10 years.


Having once been self-sufficient in energy, Indonesia’s output has fallen considerably, and with long-term contractual gas export commitments, rising domestic gas demand will have to be satisfied by costly LNG imports. Indonesia has potentially one of the world’s largest shale reserves, and in May 2013 announced tenders for 21 oil and gas exploration blocks. State energy company, Pertamina has a 30-year contract on the country’s first shale gas concession in North Sumatra, with expected assistance from Canada’s Talisman Energy. Chevron, ConocoPhillips, ExxonMobil and several Canadian and Australian oil companies have all shown interest in Indonesia’s shale gas.


Political changes have left investors less confident in the regulatory environment, with few incentives for developing shale gas and unclear exploitation rights. Shale developers are obliged to sell 25 percent of proven reserves to service Indonesia’s domestic demand. The country’s network of islands makes distribution challenging, and although there are plans to create regasification plants and ‘mini’ LNG terminals, such development is expensive, particularly as coal supplies are cheaper and more widely available.

M&A trends

The government takes a majority shareholding in any gas block, with foreign operators offering technical assistance as well as operational responsibility, receiving a minority stake. To date there have been no shale mergers or acquisitions, but future incumbents could integrate shale gas development into their existing oil and gas infrastructure. The Tangguh conventional gas field, led by BP and also involving China National Offshore Oil Corporation (CNOOC) and Japan’s Mitsubishi, Sumitomo and Kanematsu Corporations, is a typical joint venture supplying LNG to customers in China, Korea and the US.


The availability of large volumes of cheap gas from the US, Australia and Africa could threaten Indonesia’s future export potential, adding a higher risk to investments in shale exploration. If Indonesia can overcome environmental concerns over fracking and produce gas at relatively low prices, then over time it could reduce its dependence on costly LNG imports and still meet domestic demand.

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