New administration to inherit low oil output, slow biodiesel blend

The Jakarta Post, Jakarta | Business | Sat, August 16 2014

The upcoming administration of president-elect Joko “Jokowi” Widodo will face a tough challenge in the energy sector mainly due to declining oil production and a high level of fuel imports resulting from poor implementation of the mandatory biodiesel blend.

The new president, who will be sworn in on Oct. 20, will see oil production of only 845,000 barrels of oil per day (bopd) next year as stipulated in the state budget.

The target is relatively low given an earlier estimation putting output at between 830,000 and 870,000 bopd next year.

“The 845,000 bopd is made assuming that the Cepu block will start to ramp up production in November,” said Handoyo Budi Santoso, Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) spokesperson.

He was referring to the development of the Banyu Urip field in the Cepu block in Central Java. The Banyu Urip field is being jointly developed by PT Pertamina EP Cepu, a subsidiary of state-owned PT Pertamina, and Mobil Cepu Ltd. (MCL), a subsidiary of ExxonMobil Corp. MCL is the operator of the project.

The field currently has about 29,000 bopd in production and is expected to produce an additional 10,000 bopd before year-end. It is expected to reach peak production of up to 165,000 bopd; however, its average production is estimated to be 118,980 bopd next year, according to SKKMigas data.

The Banyu Urip field is important to Indonesia, which has seen its oil output decline as mature fields are being depleted.

The outgoing administration under President Susilo Bambang Yudhoyono has been struggling to boost exploration to find hydrocarbons to secure reserves. However, the move has been hampered by a number of issues, particularly the arduous procedure required for companies to obtain permission in order to conduct exploration activities.

“Oil production is declining because the wells are old. I inherited old fields. There must be more exploration so we can find new wells,” Energy and Mineral Resources Minister Jero Wacik said.

Indonesia’s declining rate of production from oil fields is at 15 percent.

Based on SKKMigas data, oil production at existing fields will be only 614,000 bopd next year. Meanwhile, new projects, including Cepu, will contribute about 140,000 bopd. Drilling and other activities, including well services and work-overs, are also expected to make slight contributions.

The declining oil production has forced the government to import a huge volume of oil and its products to meet growing domestic demand.

As part of attempts to slow down growing demand, the government has implemented a mandatory 10 percent crude palm oil (CPO)-based biofuel blend into diesel. The attempt is ongoing, although realization has been lower than expected.

Under the plan, almost 4 million kiloliters of CPO-based biofuel is targeted to be mixed with diesel this year. However, the realization is currently only 54 percent of the target, the renewable energy director general at the Energy and Mineral Resources, Rida Mulyana, said on Friday.

“We weren’t prepared for the implementation of the mandatory biodiesel blend to be so difficult, particularly with the lack of facilities, such as blending facilities. Realization of the target now depends on whether Pertamina and PLN is successful with their biodiesel procurement tenders,” Rida said.

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