Business Monitor’s new report sees Indonesia’s oil and gas sector becoming uncertain

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Business Monitor Examines Key Trends in the Oil and Gas Sector in Indonesia and Provides Short- and Long-term Forecasts for the Industry in Newly Published Indonesia Oil & Gas Report

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Business Monitor has just released its latest findings on Indonesia’s oil and gas sector in its newly-published Indonesia Oil & Gas Report.

Business Monitor believes that the outlook for Indonesia’s oil and gas sector is becoming increasingly uncertain. They forecast a long-term decline in total liquids production and a stagnation of gas production. This is mainly a result of the slow pace of exploration and development, exacerbated by an increasingly uncertain regulatory environment as resource nationalism creeps into the government's policy towards the sector. Opportunities for exports will be further compromised by the domestic market's increasing energy demand. Hence, falling oil and gas exports is another key trend identified for Indonesian oil and gas.

Key Trends and Developments discussed in the report:

■ Business Monitor forecast that oil and gas reserves will most likely be on a downward trend in the coming decade: oil reserves are expected to decrease from an estimate of 4.0bn barrels (bbl) of oil at the beginning of 2013 to 3.7bn bbl in 2017, falling further still to 3.4bn bbl by 2022. For gas, they expect reserves levels to be stagnant as addition from exploration successes in East Kalimantan cancels out natural depletion from existing fields. Reserves are forecast to fall from 3.07tcm in 2013 to 2.80tcm in 2017, and fall further to 2.51tcm unless the pace of drilling activity picks up.

■ Despite this outlook, Indonesia is a country where much below-ground potential continues to exist. If the country relaxes its nationalist stance on resources, there is considerable upside potential for both oil and gas reserves - greater drilling of its unexplored deepwater areas and its unconventional resources - coalbed methane and shale gas.

  • Business Monitor expect total liquids production (excluding refinery processing gains) to rise from an estimate of 919,670b/d in 2013 to 926,180b/d in 2014 and 932,260b/d in 2015, owing to major fields finally coming on-stream or ramping up to their full production capacity. Thereafter, in the longer term Business Monitor see oil output trending downwards to 884,840b/d in 2017 and hitting a low of 808,280b/d by 2022.
  • Despite grand plans to expand the country's refining capacity, difficulty in financing greenfield projects on top of modernising old plants in a unfavourable policy environment will see limited change to Indonesia's downstream landscape. Business Monitor expects refining capacity to stay stagnant at around 1.12mn b/d from 2015 through to the end of their forecast period. Total refined oil product output is expected to rise initially from an estimate of 981,840b/d in 2012 to 990,600b/d in 2016 - a result of an increase in output from modernised Cilacap and Balikpapan. However, growing inefficiencies in older plants could reverse this uptrend as utilisation rate falls, thereby leading to a slide in production downwards to 973,840b/d by 2022.
  • Owing to production problems, Business Monitor expect total gas production to have fallen to 71.3bn cubic metres (bcm) in 2012. Major gas projects expected on-stream in the next five years should support a slight rise in production, which they forecast at 77.0bcm in 2017 as declining production rates from existing fields will be cancelled out by new gas developments. Thus Business Monitor expect production levels to stay relative stagnant at 76.7bcm by 2022. Regulatory risks remain great and policy uncertainty underpins their sombre outlook of Indonesia's gas production within their 10-year forecast period. The country's gas consumption is estimated at 39.1bcm in 2012. With an increasing amount of new gas from projects reserved for the domestic market, this allows room for domestic gas demand to grow to about 48.0bcm in 2017 and hit 55.7bcm by 2022.

At the time of writing Business Monitor assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Global GDP in 2014 is forecast at 3.1%, up from an assumed 2.6% in 2012. For 2015, growth is estimated at 3.3%.

Business Monitor is a leading, independent provider of proprietary data, analysis, ratings, rankings and forecasts covering 195 countries and 24 industry sectors. It offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities.

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