PetroChina looking to tap Indonesia's LNG reserves

CNPC arm has technology to extract gas from remote, offshore locations scattered throughout many islands

Once a thriving and lucrative natural resources hub, Indonesia has been struggling to attract investment in recent years because of its declining production, as well as low global oil prices and uncompetitive upstream fiscal terms.

The country's existing oil and gas blocks are aging and its new reserves are in increasingly remote and more technically challenging areas such as deep water. As a result, Indonesia's oil and gas exploration and production sector has been grappling with falling investment in recent years.

Enter PetroChina International Companies in Indonesia, an arm of State-owned China National Petroleum Corp, the largest oil producer and distributor in the country.

While many international oil and gas giants are declining to invest in Indonesia, especially given currently low commodity prices, PetroChina International Companies in Indonesia vows to continue expanding business in the archipelago, using its enhanced oil-recovery technique to take up a bigger proportion of the sector in the energy-rich country.

"We have been actively looking for newer and bigger projects in Indonesia for expansion this year, in addition to keeping up production in Jabung, the company's largest block in Indonesia, which we have been working on for the past 15 years," said Gong Bencai, president of the company.

"To broaden its business in the country, the company aims to expand its business from onshore to offshore, focusing on both up, mid and downstream."

PetroChina entered Indonesia, one of its earliest international ventures, in 2002 with its acquisition of Devon Energy Companies.

The Indonesian government also expressed hopes that CNPC will bid for its new gas blocks and enhance investment in the country, hoping that Chinese oil technologies and know-how will further tap the potential of its oil and gas blocks.

In an interview with China Daily, Mohamad Zaini Md Norr, president of Malaysian state-owned energy company Petronas, expressed willingness to further cooperate with PetroChina in more blocks and sectors beyond the current Jabung block in Indonesia.

PetroChina's presence in Indonesia during recent years has resulted in opportunities for the nation, supporting its economic growth and improving the livelihood of its people, he said.

He admitted that current infrastructure facilities in new blocks and new reserves, most of which are located in increasingly remote and more technically challenging areas, are not as complete.

Amien Sunaryadi, chairman of SKK Migas, the country's regulator, echoed his comments, saying many of the islands in Eastern Indonesia are not developed. Still, it is expected that Chinese companies could further expand their business in Indonesia against the backdrop of the Belt and Road Initiative.

According to S&P Global Platts, Indonesia is rich in such resources as natural gas and is a major liquefied natural gas supplier, with the Bontang, Tangguh and Donggi Senoro LNG facilities producing 18.83 million metric tons of LNG in 2016. Its oil and gas sector, developed some 100 years ago, has been a very mature market.

However, Indonesia lacks infrastructure to reach those resources in rural areas across a sprawling archipelago of more than 18,000 islands, S&P said.

Sunaryadi said he hopes PetroChina could further develop Indonesia's oil and gas sector by leveraging its advanced technology, including enhanced oil recovery, and advantages in infrastructure construction expertise, including the erection of LNG distribution facilities.

The country's Energy and Mineral Resources Ministry also hopes to boost domestic and international investment.

Minister of Energy and Mineral Resources Ignasius Jonan told China Daily that Chinese oil and gas companies still extract a relatively small share of Indonesia's natural resources, compared with international oil and gas companies such as Chevron, Exxon Mobil, Total and BP. In fact, Chinese companies don't even make it to the top 20 oil-extraction firms working in the country.

Jonan said the country's officials look forward to greater investment by Chinese firms.

"Solving Indonesia's natural gas imbalance will require a rapid expansion of its import infrastructure and downstream prices that make small-scale LNG deliveries sustainable in the long run," said Abache Abreu, senior editor at LNG News and Analysis at S&P Global Platts.

His comments are echoed by Li Li, energy research director at energy consulting firm ICIS China. Li adds that what Indonesia needs right now is exactly what the Chinese oil and gas company has to offer.

According to Gong, Indonesia is one of the countries that can benefit the most from the Chinese government's Belt and Road Initiative and the funds prepared under its auspices to develop infrastructure.

"The company is interested in bidding the new blocks the government is going to offer in 2018, and we are already in the process of acquiring some from the government," Gong said.

"We also want to develop and attach more focus to the reserves in poorer regions, where there are rich resources... located in increasingly remote and more technically challenging areas such as deep water," he said.

Gong said PetroChina's advantage lies in both its long history and proven technology, including the areas in which CNPC has been a pioneer－enhanced oil recovery and the implementation of various techniques for increasing the amount of crude oil that can be extracted from an oil field.

"We must maintain our production levels and the only way for us to do that is with enhanced oil recovery," Gong said.

"There was never an interest in enhanced oil recovery in Indonesia before because there was such huge resources here. But today, we are living in a different situation."

According to Gong, the company is adding technology value to enhanced oil recovery techniques in Indonesia by injecting carbon dioxide to increase oil production and oil recovery, which will help the country increase its crude output from aging fields.

"Once we are successful in carrying out the technology in Indonesia, we will be the only company in the country among the 200 oil and gas businesses that use carbon dioxide to increase production," he said.

Gong said there has been progress and principles to make conditions better for oil and gas investors in recent years, including the gross-split scheme, in which taxes are waived during the exploration phase for operators until profits reach pre-specified levels.

"All these conditions allow companies more power in decision making and act quickly and operate faster," he said.