Karen Agustiawan, President Director, Pertamina: Interview

Interview: Karen Agustiawan

How can further collaboration and cooperation between stakeholders be achieved to increase oil and gas production in Indonesia?

KAREN AGUSTIAWAN: First, investors would like to see a one-door policy whereby investment, permits and all procedures to enter the market are handled by one office in the Ministry of Energy and Mineral Resources; they want a relatively straightforward and easy way to invest in the oil and gas sector. This would increase coordination among departments, as well as between ministries and the central and local governments. Secondly, and most importantly, investors would like to see incentives enacted to enter into the exploration stage. The government is currently engaged in intense discussions about incentives for oil and gas companies to invest and we are waiting for the outcome.

Is there a need to shift investment in the petroleum sector from production towards exploration?

AGUSTIAWAN: International oil companies with operations here are aware that their focus is now in eastern Indonesia. It will be expensive, but that is where the fiscal incentives to explore come into play. Coordinating with the local governments in the east is often more difficult than in Sumatra, Kalimantan or Java. The industry must be aware that there is potential in the east, but getting the local governments on board and coordinating between departments needs to be revised. The central government should handle licensing for the first 10 years while investors are engaged in exploration. Once investors are developing the assets, profits should be given back to local governments. During the exploration stage there are a number of uncertainties, even for Pertamina, so the ease with which business can be concluded needs to improve.

What are Pertamina’s plans in terms of international projects and partnerships going forward?

AGUSTIAWAN: Because we are an energy company and Indonesia is a captive market, we have to ensure that we are providing the energy that the customer needs. Pertamina is interested in a wide range of energies, and we would like to partner with companies that are ahead of us in terms of technology. For this reason, Pertamina sees areas like shale gas, solar power, biomass and electricity as appealing prospects. Our goal is to fulfil the energy demands of the country, so we are not limiting ourselves to only one type of energy. Additionally, anything that can help the country reduce its usage of conventional oil and gas is something Pertamina should pursue. Ultimately we have a captive market in Indonesia, due to the population size and the country’s continued economic growth, so the door for other investors to work with Pertamina is open.

According to the National Energy Policy 2025, production could shift significantly towards natural gas. How do you assess this prospect?

AGUSTIAWAN: For gas production, the issues revolve around price and infrastructure. Although the market demand is present, investors are very demotivated when they look at the gas price, because at the end of the day, they will not produce or monetise the asset if they do not have the correct buyer at the right price. However, in terms of infrastructure, the Arun regasification terminal has already been started. Pertamina is also building infrastructure, including pipelines from Arun to Medan, the floating, storage and regasification unit (FSRU) for Medan, the Trans-Java pipeline, as well as the FSRU in Central Java. We are even developing mini liquefied natural gas terminals for eastern Indonesia so that small islands that do not currently have electricity will have the potential to grow a local industry.

We must ensure that we monetise our gas assets, particularly in the giant fields at Natuna and Mahakam, before the shale gas from the US comes to market. If the shale gas reaches the market first, we will be forced to wait up to 20 years for supply to decline before it we can monetise our own domestic assets. We need to seize this golden opportunity before it is missed.