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INDONESIAN ENERGY, MINING & POWER SECTOR - AN OVERVIEW FOR THE INTERNATIONAL INVESTORS
By
Mr. Benny H. Harsojo
Diploma Kaufmann(Germany)
(Ex- Rabo Bank Hamburg & Jakarta)
ENERGY IN INDONESIA
OIL
Daily lifting or production is down from about 1.7 million barrels/day in 1997 to about 900.000 barrels/day by 2008. Reasons are never published but existing major wells are the ones discovered in the late 60's and early 70's. Hence peak oil production capacity may belong to the past already.
Presently PERTAMINA, the sole state oil production and distribution body, buys more than 2 million barrels of gasoline each month from refineries in Singapore to cover demand in the transportation sector. Prices of gasoline and diesel fuel are subsidized. Also contracts for delivery of crude of up to 200.000 barrels/day from Lybia by 2013 has been signed in 2008. Initial delivery is at 50.000 barrels/day level starting 2008.
New well exploration is commonly developed under JO with Exxon, Shell, Conoco, BP, Total, whereby private companies like PT MEDCO are also actively involved. However to enter this market, a very strong up front financing is required.
Indonesia has become a net importer of crude (and petrol) due to rapid growth in the transportation and power generation sectors.
GAS
Producing major wells are in ARUN-ACEH (North Sumatera) and BONTANG (East Kalimantan) producing for export and domestic needs. The NATUNA trance is still undeveloped as negotiation is still in process. The TANGGUH well in West Papua is producing for the China market but is in process in negotiating for better pricing. So far only big players exist due huge initial investments for exploration and production.
COAL
Major production is in South and East Kalimantan whereby exports in 2007 reached over 170 million MT conducted by 7 major coal miners, partly as public listed entities. Major miners are for instance PT BUMI RESOURCES group and other public listed entities.
Domestic Market Obligation (DME), mainly in the low calorie sector, is about 15% of total output intended for electricity production but this quota may be reviewed as new coal fired power plants with 10.000 MW capacity are scheduled for operation by 2013/2014. As coal is domestically available, it will remain the prime source for power generation.
Estimate coal deposits are close to 9 billion MT mainly in East Kalimantan, followed by South Kalimantan and South Sumatera.
There is still opportunity in this sector provided the investor has genuine interest in the near future. Reportedly investors from Malaysia and Korea are eyeing potential sites for future exploration in Kalimantan.
Even off site remote locations, with all of its logistic problems, like in the mountain region of Puruk Cahu, Central Kalimantan, have reportedly exchange hands with local/overseas JO which is conducting preparations to start scout drilling. Calorie range 8.000.
Japan however reportedly buys its coal mainly from Australia through its JO like BHP Biliton Mitshubishi.
POWER GENERATION
Coal powered plants are still the main pillar in power generation in the future, i.e. about 70% of future 65.000 MW national capacity by 2020 when the country celebrate its 75 years of independence. Presently PT Bakrie Power, belonging to the Bumi Resources group, is building about 2.800 MW new capacity on 4 sites in Indonesia.
Apart from coal, diesel powered plants will remain as secondary source which are also heavily subsidized. At US$ 95/barrel crude price, about 75% of electricity production cost is subsidized. Hydro, geothermal and bio-mass will play only a minor role in future.
Renewable energy remains untapped, whereby existing bio mass plants may use house hold or palm oil waste as a source of electricity production.
1 MW bio mass plant may go online by 2009-2010 in Bali-Indonesia.
Indonesia has become the number 1 CPO (Coconut Palm Oil) producer in the world in 2007/8 hence CPO crop waste (fruit bunch) may become a source of bio mass based electricity production in large CPO plantation areas such as in Sumatera or Central Kalimantan.
General information.
Coal may be offering the least complex option with a great business opportunity, as coal formation on some locations in East Kalimantan Province, are even visible above ground surface, so hand sampling can be done without the use of heavy equipment.
Development of new mining operation is still possible, however due to its complexity, requires a significant up front financing for various purposes:
* scout drilling for deposit estimate.
* infrastructure such as base camp, hauling road, jetty harbor, coal crushers, heavy duty equipment, fuel storage, etc.
* completion of formalities in obtaining permits.
From scout mine survey until 1st shipment, a time frame of at least 3 years are required if set up operation is smooth. Also the use of regional human resources has gained importance to absorb mass employment.
However time has also become a precious commodity as existing big miners are also eying on untapped areas as coal price world wide are steadily increasing and so is demand.
Benny Harsojo Dipl. Kfm.
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