The Opportunities of Crude Oil in Indonesia’s Petroleum Industry

by | Jul 6, 2022 | Market Research | 0 comments

How much crude oil is produced in Indonesia? From this amount of oil production, is Indonesia still importing oil?

Source: Unsplash

The Asia Pacific produced 8.4% of the world’s oil production in 2020, which was 7.4 million barrels per day (BPD) 2020, with the top 2 highest producers being China and India. According to data from Investopedia, China was the world’s fifth-largest oil-producing country with 4.99 million barrels per day in 2021. China expects to increase its production to become energy independent, considering the country imported over 10 million barrels per day in 2019 to meet the domestic demand.

India as the second-largest oil producer in Asia and third-largest oil consumer in the world after the U.S. and China, accounted to produce 771,000 barrels per day in 2020. Even though India’s production growth has steadied recently, the domestic demand in India continues to grow.

The third-largest producer in Asia is Indonesia, with a total production of about 743,000 barrels per day in 2020. It is declining compared to the 1990’s up until 2000, Indonesia produced on average 1.5 million to 1.7 million barrels per day.

After that period, the oil production of Indonesia recorded a downward trend to the current level, which led to its leave from the Organization of Petroleum Exporting Countries (OPEC), of which it had been a member since 1962. Indonesia’s oil production has been declining in the last decades mostly due to its aging oil fields and constantly changing regulations that cause the industry climate less stable.

Asia’s oil production has been on a consistent decline, it is predicted that Asia will reach oil demand growth up to 77% by 2025 to meet domestic needs. It is predicted that its dependence on oil imports will increase to 81% by 2025 as the Asia Pacific region consumes roughly 38% of the world’s oil in 2020, primarily driven by China’s demand.

What is the impact of crude oil on the petroleum industry in Indonesia? Which opportunity from the petroleum industry has successfully expanded its market in Indonesia? Read this article to know more!

The Overview of the Oil Production in Indonesia

Indonesia produced crude oil of approximately 259.25 million barrels in 2020. This volume of crude oil production declined and stayed stagnant over the past four years. Based on data from Statista, at the end of 2020, Indonesia had around 2.4 billion barrels of proven oil reserves, which is around 0.1% of the world’s total oil reserves. There are considerable amounts of oil in Sumatra, Java, Borneo, and Papua island. It is about 60 basins across the country, but only 22 have been explored and exploited.

Oil has been a primary sector to support the Indonesian economy, but recently it has become less priority due to its limited nature. According to data from Statista, domestic consumption has continued to increase since 2000. In 2020, the total consumption of oil in Indonesia reached approximately 1.23 million barrels daily.

Meanwhile, production has consistently fallen. In the same year, the country’s production volume of oil only reached 743,000 barrels per day. It was recorded in 2019, that Indonesia is also one of the highest oil consumers in the world. Indonesia once one of the world’s major oil producers, is now facing an extraordinary shortage due to the increase in domestic consumption.

Another challenge to increasing the production volume is most of the unexplored oil and gas blocks are located in the less-developed region of Indonesia, such as Sulawesi, Kalimantan, and Papua. These areas have limited infrastructure, capital, and other barriers to entry making it more expensive to mine the oil to the surface.

Without opening new oil fields, Indonesia will run out of its reserves in more than a decade. In 2012, Indonesia spent about USD 1.4 billion on new oil and gas exploration projects. But in 2016, the figure declined to about 732 million. The cost of opening new oil fields is quite high with no guarantee the field contains oil reserves, causing only a few companies to be willing to invest in long-term projects.

Promising Market: The Demand for Crude Oil in Indonesia

Data from the Indonesian Central Statistics Agency (BPS) shows that the volume of Indonesian crude oil imports in February 2022 spiked 66.5 percent from 707,700 tons to 1.18 million tons in January 2022 on a Month-to-Month (MtM) basis. The value of the imports also increased 87% to USD 751.3 million from USD 401.5 million in January 2022. The imports of crude oil consisting of crude petroleum oils increased from 595,300 tons to 1.14 million tons in January 2022.

If we compare it Year on Year (YoY) basis, crude oil imports of Indonesia in February 2022 increased even higher. Based on data from CNBC Indonesia, Crude oil imports in February 2022 jumped 127% from 519,400 tons in the same month in 2021. Likewise, its value skyrocketed 238% from USD 222 million in February 2021. It happened because of the high volume of imports, and also the spike in crude oil prices.

The average Indonesian Crude Price (ICP) in February 2022 was recorded to have increased to USD 95.72 per barrel from USD 85.89 per barrel in January 2022. When compared to February 2021, the ICP in February 2022 shot up 59% with the average ICP in February 2021 recorded at USD 60.36 per barrel.

The Indonesian government through the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) highlighted the imbalance between domestic production and domestic demand for crude oil in Indonesia. This imbalance causes the government to import up to 500.000 barrels of oil.

SKK Migas said that currently, Indonesia’s crude oil production is only capable of reaching 700,000 barrels/ day. While the consumption reaches 1.4 million barrels/ day to 1.5 million barrels/ day.  By 2030, the Government targets oil production of 1 million barrels/ day and gas of 12 billion cubic feet per day.

One of the focuses of the Indonesian government in handling the challenge of supply and demand imbalance is nurturing the eco-friendly energy sectors, especially investors are predicted will shift their capital expenditures more to environmentally friendly sectors. But in addition, SKK Migas said, if the target can be achieved together with an eco-friendly energy transition, Indonesia will still experience an oil deficit of 500,000 barrels that must be solved by imports.

Indonesia imported in total USD 3.13 billion of crude oil in 2020, becoming the thirtieth-largest Crude Oil importer in the world. According to data from Ekonomi Bisnis, in the same year, crude oil was ranked the 2nd largest imported product in Indonesia. In terms of partners, Indonesia imports crude oil mainly from Saudi Arabia for USD 1.21 billion, Nigeria for USD 775 million, Australia for USD 372 million, the United States for USD 248 million, and the last is Malaysia for USD 210 million.

Meanwhile, the fastest-growing import markets of crude oil for Indonesia between 2019 and 2020 are the United States (USD 161 million), Sudan (USD 39.7 million), and Iraq (USD 21.1 million). There are three famous brands in the petroleum industry in Indonesia likes Pertamina, Shell, and Exxon Mobil which will be discussed further below:

1. Pertamina

State-owned oil and gas firm PT Pertamina (Persero) posted a record net profit of IDR 29.3 trillion in 2021 following a successful business transformation. Based on CNBC Indonesia, this is done to improve efficiency in all business lines, both holding and sub-holding, starting from upstream, processing to downstream.

The 2021 transformation helped push up its consolidated net profit (audited) to USD 2.046 billion or around IDR 29.3 trillion, said President Director of Pertamina, Nicke Widyawati. The figure was almost double compared to the 2020 net profit of IDR 15.3 trillion and exceeded the 2021 Corporate Work Plan and Budget (RKAP) target by 154%.

2. Shell

PT Shell Indonesia announced a 27% growth in the number of Public Fuel Filling Stations (SPBU) in Indonesia, during 2020, after expanding to major cities. By the end of 2020, Shell had 137 gas stations operating in Indonesia, including 29 new gas stations that started operating in 2020.

According to IDN Financials data, Shell Indonesia posted a revenue of USD 344.87 billion in 2019, with a net profit of USD 16.43 billion. Meanwhile, its total assets were recorded at USD 404.33 billion at the end of 2019.

3. ExxonMobil

ExxonMobil has a long history of research in the fundamental scientific and engineering principles required to develop oil and gas. According to ExxonMobil, many conventional onshore oil fields are maturing.

Meeting rising energy demand requires new production from less traditional resources, like oil sands. Oil will continue to provide the largest share of the energy mix likes essential for transportation and chemicals – supplying about 55% of the world’s energy needs through 2040.

Enter The Indonesian Petroleum Market with BRIGHT Indonesia

Because of the huge impact of crude oil on the petroleum industry in Indonesia, of course, it takes a lot of in-depth research about the petroleum market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you. 

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

  1. Provide assistance for you in expanding and developing your business by identification of potential partners.
  2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
  3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net.

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