Indonesia's oil imports may swell to $40 bn in 2019: Analyst

May 27, 2016 12:00 AM

Oil imports will swell to more than US$40 billion in 2019 from the current value of $15 billion, as domestic supply continues to fall amid lack of exploration while demand keeps increasing, an analyst has warned.

The energy think tank Wood Mackenzie's head of Asia Pacific Research, Craig McMahon, said Indonesia, which has been an oil net importer on a US dollar basis since 2011, has yet to effectively diversify the energy amid declining oil production.

Wood Mackenzie estimated Indonesia's oil production to fall deeper from 800,000 barrels per day ( bpd ) in 2016 to around 500,000 bpd in 2019. Consequently, the imported oil volume is predicted to rise from 800,000 bpd in 2016 to around 1.2 million bpd in 2019.

"By the end of 2019 it will treble to about $40 billion. It is a huge challenge," McMahon said in a plenary session of the 41st Indonesian Petroleum Association ( IPA ) convention and exhibition held at Jakarta Convention Center ( JCC ) in Jakarta on Wednesday.

He further said oil and gas in Indonesia had underperformed, resulting in Indonesia's reserve replacement ratio to hit a poor level, below 50 percent. For comparison, the ratio in neighboring countries such as Vietnam, Malaysia and Australia was beyond 100 percent.

McMahon added that competition for investment had been intense and would stay that way. In exploration, only prospects with a clear line of sight for development would show significant progress.

"Countries seeking investment need to actively position themselves now for the recovery by offering fiscal terms that promote and reward development," he explained.

Presidential staff deputy chief Darmawan Prasodjo said Indonesia's oil and gas exploration had declined in the past five years. He asserted the need for a paradigm shift through flexible fiscal policy by considering investment feasibility indicators such as net present value ( NPV ), internal rate of return ( IRR ), payback period and profitability ratio.

Earlier, the Energy and Mineral Resources Ministry's director general of oil and gas, IGN Wiratmaja Puja said the government was planning for several incentives to boost oil and gas exploration, including tax incentives.

"Tax holiday, first trance petroleum [FTP], domestic market obligation [DMO] holiday, they are still being discussed, while land and building taxes [PBB] for upstream oil and gas exploration activities have already been scrapped," he said.

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