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Indonesia Tackles Falling Oil Output with $200B New Investment Plan

Oil Rig

Indonesia is ambitiously planning to bring in $200 billion in new oil investment as local production declines and demand grows. As part of the plan, Bloomberg reports, Jakarta will allow foreign energy companies to bid for 14 oil and gas blocks, all untapped, sweetening the deal with incentives such as tax-free imports of equipment and technology.

Indonesia is currently producing some 800,000 barrels of crude daily – about half of what it consumes – but this is expected to climb to over 1 million bpd, to reduce the country’s dependence on imports, which this month are estimated to have reached 8.4 million barrels. Over the first quarter, Indonesia’s average monthly import rate was 10.55 million barrels.

Indonesia, like China, has been suffering from the depletion of domestic fields as well as from insufficient investments over the last few years. As a result, state-owned energy major Pertamina is looking for production boosts abroad.

Since 2014, the company has grown its overseas production capacity to 150,000 barrels of oil equivalent daily through acquisitions and partnerships. The latest acquisition, of French energy company Maurel & Prom, added 30,000 bpd to its capacity. To date, the company has exposure to nine oil-producing countries, including Algeria, Iraq, Tanzania, and Nigeria and is negotiating the acquisition of two oil fields in Russia. Related: New Oil Discoveries Slump To 2.4 Billion Barrels In 2016

Last year, Rosneft and Pertamina struck a preliminary deal for the Indonesian company to buy into the Chayvo and Russkoye fields, but talks have stalled, apparently, and the finalization of the acquisitions is uncertain.

Pertamina is also interested in producing assets in Iran that hold combined reserves in excess of 5 million barrels of crude. The company is already engaged in feasibility studies at two of these fields, whose combined daily production is 74,500 barrels of oil.

At the moment, Indonesia consumes some 1.6 million bpd of crude oil and Pertamina produces 308,000 bpd of this. The company recently announced plans to boost its output by 42 percent this year, up to 438,000 bpd, but this is still well below what the country consumes, so external help would certainly come in handy.

At the same time, as Indonesia’s Energy and Mineral Resources Minister Ignasius Jonan told Bloomberg, that both upstream and downstream are important for the government, so efforts are also being directed at expanding the country’s refining capacity. Related: Is The Market Running Out Of Patience With OPEC?

Here, Pertamina is working with Rosneft and Aramco. With Rosneft, the Indonesian company will build the Tuban refinery, with a capacity of 300,000 bpd, with the Russian major planning to take a 45-percent interest in the venture.

With Aramco, Pertamina signed a JV for the expansion of the country’s largest refinery, in Central Java, which will boost daily maximum runs from 348,000 barrels to 400,000 barrels. The foreign partner will again receive a 45-percent stake in the venture, which is valued at $5 billion.

Indonesia is one of OPEC’s minor producers, which actually left the cartel last November before the production cut deal was reached, because it couldn’t afford to cut its already low output. Indonesia is also one of the countries where demand for crude substantially exceeds output. The global drive to reduce dependence on oil imports despite much more affordable prices has evidently not passed it by and we will be hearing more from Jakarta in the coming months and years.

By Irina Slav for Oilprice.com

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  • jack ma on April 30 2017 said:
    There is a massive oil shortage on the way no matter what you may think of the surplus in today's market. Chaos is coming and in a world with plenty of oil, it will not get to market in time. Imagine dying of thirst when the bottle of tasty water was just a few inches out of your reach. The thirsty world is near maybe 2 years out. This will be a terrible crisis, unless you have 75000 shares of oil stocks, maybe. IMHO

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