It is not economically efficient, and the PSC contract signing is still delayed, waiting for the decision regarding the region that is prone to fluctuations.
KATADATA/

KATADATA - On December 10th 2015, the Principle of Agreement (PoA) in East Natuna Block will expire. PT Pertamina, as the leader of the consortium in the oil and gas block, is currently still discussing about the terms and condition about the production-sharing contract with several other partners.

Right now, the state-owned oil and gas giant holds 35 percent of the block’s stake. The amount is the same with ExxonMobil’s holdings, the US-based oil and gas firm. PT Total E&P Indonesie and PTT Thailand own the remaining stakes, which are 15 percent for each firm. 

Pertamina’s Senior Vice President for Upstream Strategic Planning and Operation Evaluation, Meidawati, still could not make sure about the exact time to sign the contract agreement. Other than the fact that Pertamina is still discussing about the terms and condition of the agreement, the national oil and gas giant is also currently evaluating the technical assets, risk management, and commercial aspect with the work partners. “So it is hoped that in December 2015 there will be decision,” Meidawati said. 

Another fact is that the block had actually been given to Pertamina on June 2nd 2008 through Energy and Mineral Resources (EMR) Ministry’s letter no. 3588/11/MEM/2008. But until now, there has not been any production-sharing contract signed between Pertamina & partners and the government.

From the history, the oil and gas block that used to be named as Natuna D-Alpha Block was first being explored by Agip in 1973. This Italian firm founded the layer structure that has gas potential in it. But after discovering it, the block was returned to Indonesia. 

The government then gave the PSC contract to Esso in 1980. Exxon’s subsidiary was then partnered with Pertamina. In 10 years since 1984, there were seismic data assessment and geology studies. And as the result, it was predicted that the gas volume in place, or Initial Gas in Place (IGIP), was at 222 trillion cubic feet (TCF), and the reserve was at 46 TCF. From that amount, the content of CO2 gas was so big that it reached 70 percent of the air content.

In 1995, after several additional areas to process waste gas disposal, the PSC contract was being extended. With the merger between Exxon and Mobil Oil (which became ExxonMobil), the firm’s name became more famous as the operator of Natuna D-Alpha Block.

The contract that was signed in 1995 had expired in 2005. And in that moment in 2005, ExxonMobil’s contract was decided to be cut, since the US-based oil and gas firm had not submitted the plan of development to the government (as required by the PSC contract agreement). And due to this violation, ExxonMobil’s contract automatically expired in January 9th 2005.

However, in respond to the decision, ExxonMobil said that the firm has submitted a commitment letter for the navy structure development in one of the areas of Natuna Block. ExxonMobil responded that the firm had declared its readiness to continue with the development before the government had made the decision to end the contract. 

On the other side, the upstream oil and gas regulator (BP Migas, which is the SKK Migas’ name back in the old days) said that ExxonMobil’s development will be hard to fulfill the commercial standard, since there are many problems that the firm must face. BP Migas also saw that the interpretation over PSC Section II Article 2.2 Paragraph B refers to a commitment letter to be inadequate to avoid the expiring contract time limit. 

Three years later, there ere many companies that stated their interest in Natuna Block. There were at least seven companies that delivered letters to get the block, and they are: Total Indonesie from France, Chevron America, StatOil Norway, Shell England-Netherlands, and ENI from Italy. And then there were Asian corporations, which are Petronas from Malaysia and China National Petroleum Corporation. 

Back then the competition to get Natuna Block is very “hot”. For example, Vice President Jusuf Kalla’s visit to Netherlands in February 2009 was being used by Shell to build relation in order to get to the block. Vice President of Carbon Dioxide Shell International, Bill Spence, said that they have the technology to separate carbon dioxide molecules up to 90 percent. This was the main selling point of Shell. But, Shell’s attempt, and also other companies’, failed to bear any fruit at all. 

The government took over the block and gave it to Pertamina. The state oil and gas firm was then agreed to partner with ExxonMobil, and then Total E&P Indonesie, and PTT Thailand. On August 19th 2011, they signed the PoA for exploration and exploitation of East Natuna region. In the PoA, Pertamina asked for special privilege, considering the Carbon Dioxide in the block is very high and lethal.

Energy and Mineral Resources (EMR) Ministry’s oil and gas director general I.G.N. Wiratmadja Puja also confirmed about the Carbon Dioxide condition in the block. And that is the very problem that hinders the signing of the PSC contract. “It is still not economically efficient to be developed,” Wiratmadja said to Katadata, November 3rd 2015. 

With the current technology, the development of the block will be interesting if the oil price is above US$ 100 per barrel. And because of that, Wiratmadja still could not make sure when would the PSC contract be signed. According to him, the government is still looking for solution until now in order to develop the block. 

But, a different opinion comes from Pri Agung Rakhmanto, an Energy Observer from Reforminer Institute. He said that it is too soon to be able to say that the block is not economically efficient. With the reserve that has been proven to be at 46 TCF, it means that the block is very strategic. 

And even if half of the 46 TCF is Carbon Dioxide, the reserve is still larger than Masela Block, which is the block that causes the Coordinating Maritime Affairs and Resources Minister Rizal Ramli, SKK Migas, and EMR Minister Sudirman Said to have great debates regarding its plan of development; since this Masela Block only has 10.7 TCF. “And that is the largest proven gas reserve that Indonesia has right now. And for the future of national gas, that is very promising,” said Pri. 

Furthermore, seeing from the position, East Natuna Block is very strategic for Indonesia. This is also confirmed by Gamil Abdullah, a practitioner in oil and gas industry. According to him, from geopolitics aspect, Natuna Block’s position and Pertamina’s existence are very crucial and important. 

East Natuna Block is located in Natuna Sea, and is already included in the Exclusive Economic Zone, which is an area 200 miles long that heads towards an open sea from the maritime border of Indonesia. In this exclusive zone, Indonesia gets the first chance to make a good use of natural resources in and under the sea.

In west side of Natuna, there are Malaysia and Thailand. And in the north side of it, there are Vietnam and China. In the east side, there is Philippine. And according to Gamil, the sea area of South China to Natuna Block is very prone to fluctuations; and it is even trier since China and United States have tensed again after the US warships are present in the South China Sea.

By still partnering with ExxonMobil, Gamil said that psychologically Pertamina’s choice is very right, considering that America is behind ExxonMobil, supporting the firm. “In the energy mapping, there are many unsolved things since techno-economy or nationalism are getting even narrower. We need to know about the geopolitics map and the military power of the surrounding countries as well as their geopolitics’ stability,” Gamil said.

Arnold Sirait