In the early 20th century, Indonesia, then known as the Dutch East Indies, became Southeast Asia’s first significant oil producer, so much so that it became a major impetus for Japan in December 1941 invading in the wake of a U.S. oil embargo, imposed four months earlier.
Over the last several decades the country has seen its production relentlessly slide, so much so that it left OPEC in 2008.
In the last five years however, Jakarta, seeking to make lemonade out of lemons, has assiduously investigated alternative energy sources, and is now a huge exporter of oil and liquefied petroleum gas (LPG) to Japan on long-term contracts, along with coal to China and India.
And now another milestone has been accomplished. On 7 May Indonesian state-owned oil and gas firm Pertamina Director General for Oil and Gas of the Energy and Mineral Resources Edy Hermantoro announced that Pertamina would sign "The first contract on the exploitation of (national) shale gas reserves will be signed on the sidelines of the Indonesian Petroleum Association conference in the middle of this month," adding that the first shale gas production was expected in 2018.
The Pertamina shale gas site is in northern Sumatra near the border with Aceh province, where provisional geological data indicate that the bloc’s shale gas reserves could be up to 16 trillion cubic feet (tcm).
Edy added that Pertamina also intends to auction potential shale gas blocs in both Riau and Central Kalimantan provinces through a direct offer procedure, with the government having already received 75 proposals from foreign companies for developing the nation’s shale gas potential.
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The topic has been the hot topic of debate at the Workshop on Global Gas Market Change and Natural Gas Development including Shale Gas, held in Jakarta on 8 May.
Trisakti University Professor of Geology Agus Guntoro opined that Indonesia’s potential shale gas reserves could equal those of the United States, but cautioned that the nation should seek advanced technology to harness it.
Agus commented that according to research by Indonesian geologists, the country has about 60 shale-rich basins, spread across Sumatra, Barito, Kutai and Tarakan, along with “West Java, East Java, central Papua, Bintuni, Salawati, Buton, South Sulawesi and Seram."
Which means that the U.S. edging closer to beginning natural gas imports, will have a competitor far closer to the lucrative East Asian markets.
Not surprisingly, the Indonesian and U.S. governments organized the workshop, with the latter being highly optimistic that the two countries can work together in developing Indonesia’s shale gas potential.
Indonesia began to research its shale gas potential in 2009. Indonesian geologists estimate that the country’s shale gas potential could be up to 574 tcm, larger than the nation’s known coal bed methane (CBM) reserves of 453.3 tcf and 153 tcf of conventional gas.
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An added attraction of Indonesian shale gas serves in Sumatra, Borneo, Java and Papua is that they are relatively shallow, located at an estimated depth of 1,000-1,300 feet below the surface, unlike the country’s conventional gas reserves, which can extend 6,500 feet or more.
What does this mean for the future?
In January 2012 Thomson Reuters StockReports+ reported that, “Indonesia's energy sector stocks look undervalued at current levels based on lowest Forward PGE (Price to Earnings Growth) data… Four out of the top five (Indonesian) companies with Forward PEG at discount to 5-year average are from the energy sector… Currently the energy stocks' forward PEGs are at huge discounts to their historical PEGs. If their forward PEGs return to historical form, the stock prices should increase.”
Accordingly, expect to see U.S. companies make a major play to enter the Indonesian shale gas market, if not a marriage made in heaven, certainly a union that will be blessed by Wall Street.
By. John C.K. Daly of Oilprice.com