Government to create ?flexible? regulation to lure oil, gas investment
Saturday, September 10 2016 - 02:48 AM WIB
Director General of Oil and Gas at the Ministry of Energy and Mineral Resources IGN Wiratmaja Puja said in a statement Friday that amid the lingering weak oil price, regulatory changes are necessary to help attract new investment specifically in exploration activities otherwise the country?s oil and gas output will continue to decline, while consumption keeps increasing.
?We must create flexible regulation. When oil price was high, the state enjoyed greater share of revenue. When oil price (now) is down, the production sharing contractors must get incentives,? he said in the statement.
The statement said that through the revision of Government Regulation No 79/2010, the government aims to provide more incentives for investors in the upstream sector as part of the three major changes. It said that the incentives will not be limited to investment credit, but also include among others compensation fee for domestic market obligation, accelerated depreciation, and tax holiday.
Interim Minister of Energy and Mineral Resources Luhut Panjaitan said earlier as reported by this portal that the investment rate of return in the upstream sector should be increased to beyond 15 percent to attract new investment in oil and gas exploration.
Elsewhere, the statement said that the revision will also see changes in the cost recovery, which cost items can be reimbursed by the state, and which are not. It added that the revised regulation will also stresses the application of block basis principle, and to promote the production sharing contract as a basis in dealing with tax calculation in upstream activities.
It added that oil and gas contracts signed prior to the revision of the regulation will remain valid until their expiry.
Furthermore, Wiratmaja said that breakthrough measures are required to help lure fresh investment in oil and gas exploration activities in the country, which experts have said to hold large hydrocarbon reserves. Otherwise, the country?s oil and gas production will keep on declining, while consumption keeps on increasing, further widening the gap between production and consumption that has started since 2015
?If it?s business as usual, future oil and gas production will continue to decline, but consumption keeps on rising at a rate of 3.5-4 percent per year,? he said.
According to ministry data, the country?s oil and gas output is projected to drop to 1,810 boepd by 2020 from 2,190 boepd in 2015. Meanwhile consumption is projected to reach 2,600 boepd. Production is projected to further decline to 1,085 boepd in 2030, and 785 boedp in 2040, when consumption to reach 4,550 boepd. In 2050, oil and gas production is projected to only remain at 535 boepd compared to consumption of 5,135 boepd.
For oil production specifically, it is projected to drop to 550,000 bpd in 2020 from 820,000 bpd currently, and to further go down to 247,000 bpd in 2030, and 128,000 bpd in 2040, and 77,000 bpd in 2050.
Editing by Reiner Simanjuntak