Coal Bed Methane in Indonesia: Issues and Local Impacts from Stakeholders’ Perspective

Sumarno, T.B., Bergmann, E.A.,Dow, S., Heffron, R.J
2019
Abstract

The Government of Indonesia (GoI) initiated study on Coal Bed Methane (CBM) resources in 2002 through its oil and gas research institution called Lemigas.  The first CBM project was started in 2008 by PT Medco CBM Sekayu, in South Sumatra Basin, followed by 6 other CBM projects until the end of 2008. However, the growth of the industry has been very slow and vulnerable. This paper discusses on the issues that have hampered the development of these CBM projects in Indonesia. We applied triangulation method both for its data collection and its analyses, which are interviews, Focus Group Discussion (FGD), and survey on local impacts and expectations in which CBM developments located to obtain primary data; literature review for its secondary data; and qualitative and quantitative method to analyse the data obtained. As results, this research defines five main categories of issues that hamper the growth of the CBM industry in Indonesia, they are issues related to (1) GoI, (2) fiscal regime and regulation being implemented for the industry, (3) local communities, (4) investors, and (5) CBM technical. These issues are very connected to one and another and these issues shall be addressed to improve and support the growth of the CBM industry in Indonesia.

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Coal Bed Methane in Indonesia: A comparative analysis of Net Production Sharing Contract (PSC) and Non-Cost Recovery Gross PSC Sliding Scale

Theresia Betty Sumarno

An abstract for a Student Paper Contest 2017

 

With 453TCF potential reserves of Coal Bed Methane (CBM), Indonesia signed the first CBM PSC (Net PSC) in 2008. There have been 54 CBM PSCs signed to this date.  Before starting production, the CBM investor shall propose a Plan of Development which includes an economic evaluation of the project.  An evaluation of the current PSC shows that projects are not economically viable at current domestic gas price (US$6/mmbtu, 2016). A consortium of CBM investors have proposed a new contract, the Non Cost Recovery Gross PSC Sliding Scale to amend the current CBM PSC.

This paper shows the fundamental differences between the two fiscal regimes in Indonesia’s CBM industry, and its fiscal impacts on both of Government and Investors.

Quantitative analysis is used to evaluate the impact of the two fiscal regimes. A qualitative analyses of the regimes will be supported by literature review.  A sensitivity analysis is conducted to test the robustness of key determinants in the fiscal regime. It also seeks to understand the influence of other parameters such as the domestic gas price and the impact of the inflation.

The current PSC was developed for conventional hydrocarbon projects and needs to be modified.  It is inadequate if applied to CBM projects.  However the proposed modification, the non-cost recovery gross PSC sliding scale, will not always be the superior option for every CBM development.

The Government should establish a model fiscal regime from which to start negotiations with CBM investors. The objective is  to attract more investors by applying the new fiscal regime and increase the exploration for CBM in Indonesia to better fulfil the domestic needs.

This paper provides new insights for CBM investors on the current fiscal regime applied in Indonesia. Further study of Indonesian CBM fiscal regimes needs to be conducted.  This paper demonstrates that technical and geological aspects can influence how effective the CBM fiscal regimes can be.

Keywords: Production Sharing Contract (PSC), Sliding Scale, Coal Bed Methane (CBM), Fiscal Regime

 

PhD Symposium – Robert Gordon University

Coal Bed Methane in Indonesia: A comparative analysis of Net Production Sharing Contract (PSC) and Non-Cost Recovery Gross PSC Sliding Scale

Theresia Betty Sumarno

2017

An abstract for an Aberdeen Business School Research Student Symposium 2016

Case Study

Purpose

With 453TCF potential reserves of Coal Bed Methane (CBM), Indonesia signed the first CBM PSC (Net PSC) in 2008. There have been 54 CBM PSC signed to this date.  Before starting production, the CBM investor shall propose a Plan of Development which includes an economic evaluation of the project.  An evaluation of the current PSC shows that projects are not economically viable at current domestic gas price (US$6/mmbtu, 2016). A consortium of CBM investors have proposed a new contract, the Non Cost Recovery Gross PSC Sliding Scale to amend the current CBM PSC.

This paper shows the fundamental differences between the two fiscal regimes in Indonesia’s CBM industry, and its fiscal impacts on both of Government and Investors.

Design/methodology/approach

Quantitative analysis is used to evaluate the impact of the two fiscal regimes. A qualitative analyses of the regimes will be supported by literature review.  A sensitivity analysis is conducted to test the robustness of key determinants in the fiscal regime. It also seeks to understand the influence of other parameters such as the domestic gas price and the impact of the inflation.

Findings

The current PSC was developed for conventional hydrocarbon projects and needs to be modified.  It is inadequate if applied to CBM projects.  However the proposed modification, the non-cost recovery gross PSC sliding scale, will not always be the superior option for every CBM development.

Practical implications

The Government should establish a model fiscal regime from which to start negotiations with CBM investors. The objective is  to attract more investors by applying the new fiscal regime and increase the exploration for CBM in Indonesia to better fulfil the domestic needs.

Originality value

This paper provides new insights for CBM investors on the current fiscal regime applied in Indonesia. Further study of Indonesian CBM fiscal regimes needs to be conducted.  This paper demonstrates that technical and geological aspects can influence how effective the CBM fiscal regimes can be.

Keywords: Production Sharing Contract (PSC), Sliding Scale, Coal Bed Methane (CBM), Fiscal Regime.

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