Karen Agustiawan, President Director, Pertamina: Interview

Interview: Karen Agustiawan

How is Pertamina working to reduce Indonesia’s dependence on the usage of conventional oil and gas, and which energy sources will take priority?

KAREN AGUSTIAWAN: Priority will given to geothermal sources, because we have the potential to benefit from alternative energy such as biofuels. At the same time, it is important to be realistic about developments within this industry. For instance, over the next decade, oil production will decline to 400,000 barrels per day (bpd) if we are unable to find another major source of oil and gas. Peak production can be maintained for the next two or three years at most before beginning to decline. We do have some resources in gas. However, these need to be optimised. My vision for the company is to have all ships, buses and trucks in the country fuelled by liquefied natural gas or compressed natural gas. This should take off over the next few years, with the aim that Indonesia will no longer be dependent on oil. Brazil attempted something similar with biofuel in the 1970s. When Indonesia became a net importer of oil and gas, it should have gone down the same path as Brazil, but we regrettably missed this chance. Taking into account the country’s deficit, we can live without massive exports of crude palm oil (CPO), but we cannot cope without our current imports of energy. If we can replace a portion of these oil imports by reducing CPO exports and dedicating ourselves to biofuel it will help tackle the country's deficit. Of course we would have to find ways to compensate palm oil farmers as if they had the export price, but this would be smaller than the current subsidy for energy. If successful, this could reduce crude dependency to 30% of current usage. Any production site that has geothermal should use it for electricity generation, while any site that has hydropower potential should use it for electricity generation – and so on for biomass and solar. We must avoid becoming dependent solely on Perusahaan Listrik Negara (PLN) for power generation. This is where small and medium-sized enterprises can play a leading role in contributing to Indonesia’s economy.

To what extent can Indonesia replicate the US’s success with shale gas exploration and production?

AGUSTIAWAN: While shale gas contains great potential, we do not yet have the infrastructure in place to take advantage of it. Besides, we are still not sure how many export licenses the US government will issue in the short term. As a result, I feel sceptical that we will develop these fields. These are long-term investments, requiring as many as three decades to make sense from an economical point of view. If the domestic market could pay for the high prices of Indonesian gas then we could consider it, but I doubt this will be the case.

Which specific infrastructure projects would make investing in exploration and production in eastern Indonesia more attractive to energy majors?

AGUSTIAWAN: Pertamina is entering the Papua side even though we are not among the largest players. Therefore, we would like to see the government build new infrastructure there such as fertiliser and cement plants, and even invest in the food industry. It can also be very expensive at present to get products to Papua owing to the costs incurred during transportation.

Therefore, while we do need to think about providing energy security to eastern Indonesia, we cannot of course also forget that we are a corporate structure seeking profit, and that we need an economic scale for us to have a stronger presence in the area.

How would you assess the progress that has been made in negotiations to incentivise refinery investments in conjunction with foreign companies?

AGUSTIAWAN: The existing incentives are not sufficiently appealing for foreign investors to build refineries at the present time. As a result, the government is revising its plans with the intention of launching an international bid. The goal will be to increase downstream capacity to 600,000 bpd by 2017 thanks to these two new refineries. Having said that, we would also like to see the construction of a third refinery in Indonesia.