Indonesia ripe for U.S. investment in shale gas?

Sept. 30, 2013 at 2:14 PM
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JAKARTA, Sept. 30 (UPI) -- Indonesia is encouraging the United States to invest in shale gas exploration in the Southeastern Asian country.

Energy and Mineral Resources Minister Jero Wacik said the government hopes the United States will transfer technology to develop shale gas, following on the success of the U.S. natural gas boom, The Jakarta Post reports.

"The U.S. government has successfully developed shale gas. Indonesia also possesses potential reserves of shale gas; thus, we are asking them to launch shale gas exploration in our country," Jero said in a statement Friday.

Indonesia has estimated shale gas resources of 574 trillion cubic feet in Sumatra, Kalimantan, Papua and Java, the ministry says.

State-owned oil firm Pertamina in May was awarded the country's first shale gas project, the Sumbagut block in North Sumatra, estimated to contain 18.56 trillion cubic feet of shale gas.

The company has committed to spend $7.8 billion for exploration of the block. Pertamina President Director Karen Agustiawan, in signing the contract, said shale could support the government's efforts for energy diversification by reducing the country's dependence on oil.

Jero's statement encouraging U.S. investment in Indonesian shale comes ahead of U.S. President Barack Obama's expected visit to the country for the Asia-Pacific Economic Cooperation Economic Leaders meeting, which takes place Oct. 7-8 in Bali.

Yet experts say Indonesia faces some drawbacks for shale gas investors. Formerly a net oil exporter in the Organization of the Petroleum Exporting Countries, Indonesia has struggled to attract enough investment to meet growing domestic energy consumption because of inadequate infrastructure and a complex regulatory environment.

The Indonesian government does not have a favorable financing scheme for shale gas development, Widhyawan Prawiraatmadja, a deputy at oil and gas regulator SKKMigas and a seasoned petroleum engineer, told the Jakarta Globe.

"[Companies] demand the government to put an incentive up front," he said.

Ignatius Tenny Wibowo, president director of Pertamina Hulu Energi, a subsidiary of Pertamina specializing in developing shale gas, cited Indonesia's lack of infrastructure as a major obstacle.

The combined length of the pipeline network under the direction of Pertamina and Perusahaan Gas Negara, a state-controlled gas distributor, is about 3,100 miles. That compares with the approximate 2.5 million miles of gas pipes spanning the United States.

"Indonesia does have the potential, but I think it would take years before we could see its impact," Victor Shum, managing director at IHS Consulting, told the Globe.

The cost of drilling each shale gas well in Indonesia is an estimated $8 million, compared with the average drilling cost of $2 million to $3 million per well in North America, the Globe reports.

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