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Cablegate: Indonesia Oil and Gas Highlights - November 2008

VZCZCXRO1519
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #2211/01 3440410
ZNR UUUUU ZZH
R 090410Z DEC 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 0895
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 2817
RUEHUL/AMEMBASSY SEOUL 5205
RUEHBJ/AMEMBASSY BEIJING 5705
RUEHNE/AMEMBASSY NEW DELHI 2486
RUEHBY/AMEMBASSY CANBERRA 3378
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 JAKARTA 002211

DEPT FOR EAP/MTS AND EB/ESC/IEC/ENR
DOE FOR PI-32 CUTLER AND GILLESPIE
COMMERCE FOR 4430/NADJMI AND 6930/HUEPER
DEPT PASS USTR EHLERS

SIPDIS

E.O. 12958: N/A
TAGS: EPET ENRG EINV PREL ID
SUBJECT: INDONESIA OIL AND GAS HIGHLIGHTS - NOVEMBER 2008

1. Summary. Indonesian crude oil production has increased in 2008
relative to 2007, although it is below government target of 1
million barrels per day. U.S. companies won 4 of 31 new oil and gas
exploration contracts. The Indonesian government is trying several
methods to boost its balance of payments from the oil and gas
sector, including reducing foreign oil purchases and requiring
contractors to keep operating funds in local banks. Indonesia
reduced its subsidized fuel prices due to falling oil prices, and
domestic natural gas consumption continues to increase with an
expanded pipeline network. End Summary.

--------------------------
Production and Exploration
--------------------------

2. According to oil and gas upstream regulator BP Migas, average oil
production as of October 2008 was 977,200 barrels per day (bpd),
which is only a slight increase compared with last year's production
of 954,400 bpd. It is still below the Indonesian government target
of 1 million bpd for 2008. According to the Ministry of Energy
Office and Mineral Resources, Indonesia had proven and potential oil
reserves of 8.4 billion barrels and produced about 348 million
barrels in 2007. In the natural gas sector, Indonesia had proven and
potential reserves of around 165 trillion standard cubic feet
(TSCF), with production of around 2.7 TSCF in 2007.

3. On October 17, the Directorate General of Oil and Gas (MIGAS)
announced 22 winners of oil and gas direct tenders from a total of
25 blocks offered in May 2008. Total investment for the first three
years of exploration of these blocks will be about $375.5 million.
Two U.S companies participated in the tender, ConocoPhillips on
Arafua Sea and Chevron Indonesia in West Papua. On the same day,
MIGAS also offered 31 new oil and gas blocks, with 16 blocks being
offered through a regular tender while the rest will be offered
directly as a result of joint studies. On October 31, MIGAS
announced 9 winners from 21 blocks offered in January 2008. The
companies are committed to do the exploration for three years with
total investments amounting to $465.1 million. Two of these winners
were U.S. companies - ExxonMobil in East Java, and Hess in West
Papua.

-------------------
Balance of Payments
-------------------

4. In order to boost the balance of payments surplus, on October 28
the Ministry of Energy and Mineral Resources announced a plan to
minimize fuel imports, increase commodity exports and support
foreign investment in the energy and minerals sector. Indonesia has
already reduced purchases of crude oil for refining, beginning in
November. Plans to expand commodity exports have so far not been
announced.

5. On November 19, upstream regulator BP Migas announced a plan to
strengthen Indonesia's forex reserves by requiring local and foreign
oil and gas production sharing contractors (PSCs) and subcontractors
to use local banks for all transactions to be claimed as cost
recovery. PSC contractors already keep most of their funds for
local operations in local banks, although international
subcontractors often do not. The Ministry of Energy and Mineral
Resources has not yet put out regulations on this policy, but
expects to do so in December.

-------
Subsidy
-------

6. On November 18, the Director of Program Supervision in the
Directorate General of Oil and Gas, Heri Purnomo, said that there is
a strategy to substitute subsidized kerosene with liquid petroleum
gas (LPG). During 2008 households consumed 7,838,337 KL of
subsidized kerosene, accounting for 79.6% of household fuel
consumption, compared with only 2,013,475 KL of LPG. In 2009 Heri
Purnomo expects the proportions to be switched, with kerosene
consumption at 3,087,144 KL (31.3%) and LPG equal to 6,764,668 KL
(68.66%). The Indonesian government retains a subsidy on all LPG,
after a plan to remove subsidies on 12 kg and 50 kg canisters of LPG
(but keep them for 3 kg canisters) was scrapped in September.

7. Due to falling crude oil prices, the government has announced

JAKARTA 00002211 002 OF 002


plans to cut the price of subsidized gasoline from Rp 6,000 ($0.50)
per liter to Rp 5,500. The subsidized prices of diesel fuel and
kerosene remain unchanged at Rp 5,500 and Rp 2,500 respectively per
liter, although the government has indicated that it may reduce the
price of subsidized diesel in December.

----------
Downstream
----------

8. As of June 2008, state-owned downstream natural gas company PT
Perusahaan Gas Negara (PGN) transported 743 million standard cubic
feet per day (MMSCFD) of natural gas through its transmission
pipeline for 2008 to Chevron in Singapore. It was a slight increase
compared with 720 MMSCFD delivered for the same period in 2007.
Moreover, PGN has increased the volume of gas sold to domestic
customers through its distribution network by 42% to 551 MMSCFD,
compared with 389 MMSCFD sold in the previous year. The increase was
due to gas distribution through the South Sumatra West Java (SSWJ)
pipeline that started in August 2007.

HUME

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