Repositioning Oil and Gas in Preparation for Indonesia 4.0

President Joko “Jokowi” Widodo led a limited Cabinet meeting on Jan. 23, 2019 to discuss the draft law on oil and gas that was proposed on the initiative of the House of Representatives. This important initiative involves the entire political spectrum in the country that must prioritize long-term national interests and not short-term political interests.

The energy sector is a sector that needs to be managed professionally, regardless of politics and politicization. No country can grow without sufficient energy. Energy sufficiency is impossible to achieve without long-term planning and policy, which should be followed with consistent implementation so that it is able to attract the investment needed.

Import needs

Oil and gas are a very important part of Indonesia\'s current and future energy mix. The General National Energy Plan (RUEN) has assumed that new and renewable energy (EBT) will grow 15 fold to 315.7 million tons of oil equivalent (MTOE) in 2050 from 20.3 MTOE in 2015. It still indicates the need for oil supplies that are expected to increase to 1.9 million barrels per day in 2025 and to 3.9 million barrels per day in 2050.

In fact, oil lifting (production) in 2018 was recorded at only 0.778 million barrels per day. So, RUEN gives a signal that Indonesia will need to import 77 percent of its oil needs in 2025 and 87 percent in 2050. Indonesia will have a natural gas deficit that is expected to reach 37 percent in 2025 and 78 percent in 2050. The estimate has assumed additional domestic production from new exploration activities.

Oil and gas imports for many countries are a necessity and will not cause a big problem as long as the country\'s economy is strong enough to meet oil and gas prices in the international market as the source of supply. While in Indonesia, we have suffered a large trade deficit, partly due to oil and gas imports, which according to RUEN projections will continue to increase at least until 2030.

In fact, the potential of oil and gas resources in Indonesia is still promising even though finding and developing it will not be as easy as in the past because of different geological challenges. Large investments and advanced technology are needed so that cooperation with companies and human resources from outside Indonesia is necessary.

We need to address the involvement of colleagues from outside Indonesia with an open mind: the oil and gas industry is a global industry. Indonesian labor and companies also work and operate abroad. The

most important thing is that the exploitation of this sector supports national interests by attracting sound investment.

The more oil and gas investment in Indonesia, the more people we can work in the country - not only those who work directly in the oil and gas sector, but also in various supporting sectors and other related activities.

In the downstream sector, providing such large oil and gas consumption also requires a lot of new infrastructure, namely oil refineries, regasification facilities, pipelines, refueling stations and so on.

The downstream sector also requires large investments that are difficult to fulfill only from domestic funding sources.

Oil and gas governance

This very challenging profile of oil and gas needs to be managed and overcome by the oil and gas bill that is currently being formulated by the government and the House to support the sustainability of development and long-term national economic growth.

The directives of the President during the limited Cabinet meeting, namely that the oil and gas bill should encourage efforts to increase oil and gas production, strengthen national capacity and the domestic industry, increase investment in human resources and to increase the value to the national economy. To achieve this, oil and gas governance should be competitive, efficient, transparent and not complicated.

Production can be increased only if there is an increase in investment. Indonesia competes tightly in attracting oil and gas investments with other countries because there is no a single country capable of developing the oil and gas sector only with state financing.

Investors will also compare the level of risk and return on investment globally. The government that prioritizes state revenues from the oil and gas sector (for example by applying profit sharing with the majority going to the government’s coffers) will provide a lower rate of return on investment to investors.

If this is combined with a level of risk that is relatively higher than other countries, we can be sure no foreign investment will come. Therefore, the oil and gas bill must ensure that the cooperation scheme must provide certainty and can immediately attract massive investment.

Repositioning paradigm

Oil and gas governance should be able to reposition the oil and gas paradigm from "oil and gas as a source of state revenue" to "oil and gas as the basic capital of development that could trigger multiplier effects to the national and regional economy". This repositioning is possible because Indonesia\'s development has succeeded in increasing the contribution of other economic sectors to the State Budget (APBN).

The contribution of oil and gas, which reached more than 60 percent in the 1973-1983 period, is now only around 6 percent. In fact, the repositioning of this paradigm is needed because Indonesia no longer relies oil and gas to support the state budget, but it needs the availability of oil and gas to drive the economy. This paradigm is in line with the mandate of the Energy and Government Regulation No. 79/2014 concerning the national energy policy.

The future of the Indonesian economy needs to follow the rhythm of the Industrial Revolution 4.0 that still needs oil and gas as a source of energy or industrial raw materials. If oil and gas supplies are disrupted, Indonesia\'s economy will be too vulnerable to imports and global disruption.

Downstreaming without an increase in upstream production means building an industry that will depend on imports. Therefore, the oil and gas bill needs to protect the oil and gas sector from rent seekers and provide convenience to bona fide investors so that they are willing to invest hundreds of trillions of rupiah and help develop Indonesia\'s human resources and national industry.

Without investment, it is impossible to carry out the mandate of Article 33 of the 1945 Constitution to use our natural wealth for the greatest prosperity of the people and achieve a prosperous Indonesia based on Pancasila in 2045. (Subroto,  Energy and Mineral Resources Minister (1978-1988); Emeritus Professor at the School of Economics, University of Indonesia; OPEC Secretary-General (1988-1994); Chairman and Founder of Bimasena)