APEC Oil and Gas Security Newsletter

Transcription

1 US Dollars per barrel Your Organization October 2015 Issue No. 6 APEC Oil and Gas Security Newsletter Indonesia s Surprising Return to OPEC and Its Reasons On 8 September 2015, the Organization of Petroleum Exporting Countries (OPEC) officially announced that Indonesia, which used to be one the organization s pioneer members but suspended its membership of the organization on 1 January 2009, reactivated its membership. Indonesia will be invited to OPEC regular meeting on 4 December Indonesia has been a net oil importer since 2003 hence it may seem odd that the country recovers its membership with the organization of oil exporters. But there exist several reasons that justify the country s return to the organization. First, by restoring its membership of OPEC, Indonesia will have more opportunities to deepen relationships with core oil producers in Middle East such as Saudi Arabia or UAE. Import dependence of the country has been steadily increasing and closer ties with OPEC member countries will help ensure a stable oil supply for Indonesia. Indonesia in fact plans to expand its refining capacity and will need to procure additional crude oil to feed into the new capacity. Furthermore, by being an insider of OPEC discussions, it will also improve the country s market intelligence in the international crude oil market. OPEC also has good reasons to invite Indonesia. As oil demand in developed countries will continue to shrink, how to ensure another market outlet for their crude oil is of critical concern for all oil exporters. OPEC countries will have an advantage in marketing its crude oil to Indonesia against non-opec oil exporters such as Russia. Another potential reason for OPEC is to expand its role in international oil market. OPEC ceased to set country-wise oil production quotas since December Internal competition among member countries over market share has become intensified and its solidarity and influence to the market is perceived as weakened. Including a rising oil importer like Indonesia may reinvent its function as another oil producer-consumer dialogue platform. (next page) In this issue Indonesia s Surprising Return to OPEC and Its Reasons... 1 Sign of Change in Oil Market... 2 Middle East Update... 3 Economic Slowdown in China and Window of Opportunity for Potential LNG Importers... 3 Interview with Prof. Dr. I Gusti Nyoman Wiratmaja Puja... 4 The Energy Reform in Mexico: Implications for Asia-Pacific Region... 6 LNG Producers-Consumers Conference Highlights Upcoming Event :2nd OGSN Forum Upcoming Event :OGSE in the Philippines Crude Oil Spot Price (WTI and Brent) Natural Gas Spot Price (Henry Hub) Photo Story CRUDE OIL SPOT PRICE 0 Aug 20, 2015 Sep 19, 2015 Oct 19, 2015 WTI-Cushing, OK Brent -Europe WTI USD (Oct. 19) Source : US Energy Information Administration Change from previous day Brent 3.0% WTI 2.9%

2 ...If the result of this incident becomes fullscale, diesel oil demand will probably be pushed down substantially in a longer perspective NATURAL GAS SPOT PRICE 0 Aug 20, 2015 Sep 19, 2015 Oct 19, 2015 Henry Hub USD 2.43 (Oct. 19) Source : US Energy Information Administration 2 Change from previous day...this slowdown by itself is having a significant impact on the supply side. 0.4% Indonesia s. While the impact of Indonesia s return to OPEC is still unknown, having a closer relationship between oil importers and exporters, regardless what kind of means to be adopted, is always important for oil supply security. It is expected that Indonesia s return to OPEC will contribute to the stable oil supply to the country. Editor s Note: Indonesia is called economy in APEC. But since, this article covers OPEC matters, Indonesia is referred to as country as OPEC called its members country. Sign of Change in Oil Market Recently, we heard two interesting news reports in the oil market. The first one is relevant to oil demand in United Kingdom (UK) and the other is the scandal on Volkswagen cars. UK has experienced peaking of oil demand in 2005 but afterwards demand has been decreasing just as many other OECD countries have. However, during the first half of 2015, oil demand rose to 1.6% compared to the same period last year which was the fastest pace ever since It can be explained that the strong economic growth and cheap oil price have contributed to the recovery of oil demand. After the oil crisis in 1970s, OECD countries have succeeded in reducing oil dependency through changing their energy supply structure and improving energy efficiency. In addition, global society has been urging the move against climate change. Low oil price is a good remedy for oil importing countries in removing the pain caused by high fuel prices from their economy. However, if the recent low oil prices also slow down necessary action to enhance energy security, we may suffer badly from its side effects in the future. Another story is about the incident with Volkswagen cars which is also relevant to oil industry, particularly the refining sector. The cheating incident on the emission test of diesel car may possibly move some people away from buying diesel cars. If the result of this incident becomes full-scale, diesel oil demand will probably be pushed down substantially in a longer perspective. This development in the business environment will adversely affect the refining sector, particularly in Europe where there is a long history of policy support and preference for diesel car rather than gasoline car. These two interesting news are not evidences nor proof that would alter long term trend. However, it could possibly turn out to be a sign of change of future oil market.

3 Middle East Update Current Situation of Piracy in the Indian Ocean According to the statistics of the International Chamber of Commerce, there were no reports on piracy and armed robbery in the Gulf of Oman, the Arabian Sea, and the Gulf of Aden since the end of September Naval forces of the international coalition for anti-piracy, CTF 151, have played a key role in patrolling and escorting commercial ships to safeguard them from Somali pirates. On the 8th of October 2015, European Union Chair of the Contact Group of Piracy off the Coast of Somalia (CFPCS) has announced that piracy High Risk Area (HRA) in the Indian Ocean will be reduced from December 1st to reflect the current situation. However, coastal areas of the Arabian Peninsula except for the Gulf of Oman will still be included within the HRA. Thus, we should keep monitoring the developments of the region, not only about the Horn of Africa, but also on Yemen where currently the emerging conflict between the Yemeni transitional government, Arab coalition forces, the armed group known as Houthis, and the terrorist group AQAP are taking place. It is important to note that instability of this region may bring new challenges to maritime security. Economic Slowdown in China and Window of Opportunity for Potential LNG Importers While world financial market was shaken by the devaluation of renminbi and stock market collapse in China, it is increasingly clear that natural gas demand in China is also slowing down. The demand growth for the past decade was as high as 16% per annum, but the demand in May-June 2015 was actually lower on a year-on-year basis, which has not happened for a long time in China. Map of Gulf of Aden Photo Source European Union The Gulf of Aden is an extension of the Indian Ocean. Located between Africa and Asia, it forms the natural separation between the countries of Somalia and Yemen. Gulf of Aden waters flow into the Red Sea through the Bab el Mandeb (strait), and because it provides an outlet to the west for Persian Gulf Oil, it's now one of the world's busiest shipping lanes. In that regard, piracy is a major problem in these waters, especially for small sailboats and yachts. Photo Story Source : worldatlas.com Background of this demand slump is of course primarily economic uncertainty in China. But it is also about competitiveness of natural gas being eroded against coal and oil products. In recent months, there seem to have cases where natural gas is switched back to coal or oil products, which is extremely rare in other major natural gas consuming countries. Indeed, at LNG Producer-Consumer Conference on September 16, a speaker from China National Petroleum Corporation- Economic and Technology Research Institute admitted that natural gas demand in China might not reach 300 bcm in 2020, let alone the government target of 360 bcm, without strong government support. Since China will be the demand engine of natural gas in the coming decades, this slowdown by itself is having a significant impact on the supply side. It is no surprise that China National Offshore Oil Corporation and Sinopec might not be able to lift contracted LNG from Australia. Natural gas demand in Japan and Korea, the largest LNG importers, is weak too. We are in the middle of LNG project rush, mainly in Australia and the US. For potential LNG importers in APEC region, this is a rare window of opportunity to introduce LNG and benefit from cleaner fossil fuel. 3

4 Prof. Dr. I Gusti Nyoman Wiratmaja Puja Director General of Oil and Gas Ministry of Energy and Mineral Resources Indonesia IGN Wiratmadja graduated from Mechanical Engineering, Bandung Technology Institute in He received Master of Science in Engineering Mechanics from University of Kentucky, U.S.A (1994), Doctor of Philosophy in Engineering Mechanics, University of Kentucky, U.S.A (1996), Post Doctoral in Mechanics of Solid & Materials, Dept. of Mechanical and Intelligent Systems Engineering, Tokyo Institute of Technology, Japan (2000) and Post Doctoral in Smart Materials & Structures, School of Aerospace, Mechanical and Mechatronics Eng., University of Sydney, Australia (2002). Interview with Prof. Dr. I Gusti Nyoman Wiratmaja Puja IGN Wiratmadja was appointed Director General of Oil and Gas in Indonesia s Ministry of Energy and Mineral Resources in May He is also a professor at Bandung Technology Institute. APERC is honoured to have him for the Interview with the Expert. APERC What are the main challenges that you encountered in the development of oil and gas in Indonesia? How do you overcome the challenges? Pak IGN Wiaratmaja The main challenges in Indonesia s oil and gas development these days are divided by upstream, downstream, and supporting sector. The upstream sector s problems include the decreasing of oil and gas reserves where there s no new discovery of proven reserve for 11 years and also high capital cost due to development in deep water areas. The proven oil reserve in Indonesia is about 3.7 billion barrel with reserve to production ratio is about Meanwhile, gas reserve in Indonesia is about 101 TCF with reserve to production ratio To solve the above issues, Indonesian government has established National Exploration Committee to identify the efforts in increasing the national oil and gas reserve and production. The National Exploration Committee has given suggestions and inputs to Indonesian Government related to the efforts to stimulate oil and gas exploration activity in Indonesia. Among these efforts are improving seismic data quality, giving exploration incentive, eliminating exploration tax, and simplifying exploration permit. In addition, the efforts to increase the national oil and gas production are by utilizing Enhanced Oil Recovery technology and publishing policy on mature well management. In the downstream, the increasing of oil and gas demand along with the increasing of economic growth makes the development of infrastructure necessary, however the oil and gas infrastructure development is not distributed evenly and also lack of infrastructure in eastern area of Indonesia. Thirteen years the enforcement of Oil and Gas Law No. 22 year 2001, Indonesian Government experienced the slow development of national oil and gas infrastructure. The investment for infrastructure development is relatively low, while the commercial business entities without facility tend to increase significantly. Nowadays, Indonesian Government is improving its national oil and gas management to promote massive infrastructure development particularly in eastern part of Indonesia. On the other hand, the government is also promoting the utilization of LNG as second primary energy i.e. power plants, transportation, marine, and other industries. In addition, we have also a problem in manufacturing industry where it s not yet developed as expected by the government of Indonesia. Indonesia s essential component manufacturing industry should grow (next page) 4

5 Interview. and meet the Indonesia s oil and gas industry demand. Thus, the dependency on equipment s import decreased. The issue of permit in oil and gas investment has become one of the factors the slowing national oil and gas investment. To overcome this issue, Indonesian Government has managed and maintained the oil and gas permit scheme. The permit simplification in oil and gas sector is conducted by decreasing the number of permits from 104 permits to 42 permits. Furthermore, Investment Coordinating Board (BKPM) now manages the permit process in oil and gas sector in one stop service. Indonesian Government hopes that this one stop service will ease the investor in processing investment permit in oil and gas sector. APERC What can you say about the Government s decision of removing subsidies on diesel and gasoline? Pak IGN Wiaratmaja In Indonesia, gasoline and diesel are Public Service Obligation (PSO) fuel. In 2014, the gasoline consumption is about 29.6 million KL and solar consumption is about 19.6 million KL. The PSO fuel consumption consisting of about 50% gasoline and 35% diesel is fulfilled by importing the fuel. The fuel import tends to affect the stability of Rupiah exchange rate since dollar is used in fuel import transaction. The fuel subsidy allocated in 2014 reached of about 246 trillion rupiah. This has burdened the state budget. The policy to eliminate subsidy for gasoline and to reduce subsidy for diesel are ways to manage the government fiscal. Besides that, Indonesian Government also identifies that these subsidies do not meet the target. The subsidies are enjoyed by the middle and upper class society. Saving from removing or reducing the subsidies will be shifted to infrastructure development such as roads, bridges, dams, ports, airports and increase social welfare. The elimination of fuel subsidy will also increase the utilization of new and renewable energy. Although the government has eliminated and reduced the subsidy for PSO fuel including gasoline and diesel, it does not mean that the fuel price will follow the market price. PT Pertamina (Persero) as state owned company, which is assigned to supply and distribute PSO fuel, should determine the price based on the government s decision. In determining PSO fuel price, the government considers the international oil market price, fuel distribution cost, and taxes. Every three months, the government reviews the fuel price policy for the sake of justice for people. Besides that, the review will help PT Pertamina (Persero) to avoid financial loss in supplying and distributing PSO fuel when international oil market experienced price volatility. APERC I understand Indonesia has decided to join OPEC again, what triggers the decision? Will it be beneficial to Indonesia? Pak IGN Wiaratmaja Indonesia s decision to reactivate its membership in OPEC is based on many considerations. We have identified the benefits of being a member of OPEC. The cooperation enhancement through multilateral organization such as OPEC for Indonesia gives the benefits in the areas of economy, politics, international peace and security, social and culture, as well as humanity. At present, Indonesia is still exporting oil, condensate, and gas. The oil and condensate export in 2014 reached million barrel. By gaining our membership in OPEC, it shows that Indonesia has come back in the networking with oil producer countries and tightens its friendship with OPEC member countries. OPEC has given about 42% contribution in the world oil market. It means that the oil supply and price in international market are still highly influenced by OPEC. Furthermore, with the membership of Indonesia in OPEC will definitely increase OPEC bargaining position in global oil market. It is expected that there will be good networking between OPEC member countries to help each other in securing oil supply. Indonesia will take initial position in OPEC to create petroleum security agreement. This will be beneficial in helping OPEC member countries in case of oil supply emergency. Moreover, Indonesia is the only Asian country in OPEC that will be able to increase its bargaining position and put itself as the mediator in global energy politics. Above this all, Indonesia would like to secure our national interest in our national energy security. We would like to be more active in OPEC s activities especially in formulating the policy. APERC You were not able to participate in the (next page) 5

6 Interview. LNG Producer-Consumer Conference 2015, but what do you expect about the Conference? If ever, will you consider participating next time? Pak IGN Wiaratmaja The LNG Producer-Consumer Conference is one of the outstanding gas forums in the world. Our record shows that in 2015 s event, the conference has attracted more than 1000 participants and more than 50 producer and consumer countries. It was also attended by various government officials, CEOs, and energy analysts. The Ministry of Economic, Trade and Industry Japan and APERC had become the successful host of this conference. As you may know, the gas market in Indonesia is now in transition phase in which the gas is prioritized for domestic consumption. Now Indonesia is planning to import LNG. We put our hope upon the views and thoughts in this conference. Your thoughts will be very fruitful to us in obtaining comprehensive information regarding LNG market dynamic in Asia and global market. I do hope that the outcomes of this conference will become references for stakeholders in global LNG market. APERC What is your impression on the APEC Oil and Gas Security Initiative, which is being conducted by APERC? Is it useful to APEC in addressing oil and gas supply security? Pak IGN Wiaratmaja As you may know, at present Indonesia is giving its highest concern on setting up national energy security concept. The national energy security is closely related with regional energy security. A number of international cooperation enhancements have been conducted through bilateral and multilateral relationship by Indonesia to support the national energy security. APEC Oil and Gas Security Initiative is in line with Indonesia international cooperation mission especially in oil and gas sector. We have identified that the issue in national oil and gas strategic reserve is still the main problem to be solved. In this regard, Indonesia realizes that the policy on national oil and gas reserve must be formulated properly. At present, Indonesia has the target to increase its national fuel operational reserve up to 30 days. This requires benchmarking to other countries and experienced institutions in developing national fuel reserve. The role of APERC in conducting APEC Oil and Gas Security Initiative should be appreciated as the effort in sharing information to APEC member countries on how to manage energy security especially oil and gas security in each country. The Energy Reform in Mexico: Implications for Asia-Pacific Region In December 2013, Mexican congress passed Constitutional amendments which allow foreign or private companies to participate across the entire value chain of Mexico s oil, gas, and electricity industries. The main objectives of the reform are to promote exploration and production in order to expand the domestic production, refining and distribution of oil and gas; to increase the private investment in these activities; and to lower electricity tariffs. The government has implemented the reform steadily; the secondary bill to implement the reform was passed by congress in August Mexico s Energy Ministry announced the areas for exploration and production that remain under the control of PEMEX as a result of the company s request at the Round Zero. In December 2014, SENER announced the tender for its first oil blocks in shallow water areas under a production-sharing regime, namely the Round One. Despite these milestones, the settings of the global energy market are not so favorable. The dramatic fall in crude oil prices, which halved in only six months starting from June 2014 is curtailing many upstream projects, including those in Mexico. More importantly, the United States, Mexico s main traditional destination for crude exports, is progressively more self-sufficient due to its growing domestic production from shale formations. As a net exporter of crude oil but a net importer of oil products and natural gas, Mexico faces many (next page) 6

7 The Energy Reform. challenges in the aftermath of its energy reform. On one hand, the reform is expected to expand domestic oil and gas production in the medium and long term, which opens the possibility for Mexico to strengthen its role as an exporter of oil and probably of gas too, to serve the Asia-Pacific markets. On the other hand, the steady growth in Mexico s domestic energy demand calls for a reliable and stable supply that is competitively-priced in order to support robust economic growth. These two issues serve as the rationale for this research. As of the end of March 2015, the result of Round One was unknown. However, questions regarding attractiveness of blocks offered and poor fiscal condition of the contract were pointed. In refining sector, configuration projects at PEMEX s six refineries were also suffering from low oil price and budget cut. In gas and power sector, the Energy Reform paved the way for investors to build new natural gas fired power plants and pipelines. Under the new regime, the national electricity company embarked on massive investment in new generation capacity, mainly natural gas combined cycle, and natural gas pipelines. These projects will double Mexico s import capacity of cheap U.S. gas in next five years. However, as a negative effect, cheap gas supply from the U.S. may diminish investment on domestic gas production. The Mexican government is continuously working for improvement in investment climate, and external environment including crude oil price will affect the progress of the reform, so continued and careful observation will be needed. Author s note: The study was completed in March opens the possibility for Mexico to strengthen its role as an exporter of oil and probably of gas too, to serve the Asia-Pacific markets. Photo and Photo Story Mexico s Planned Shale Gas Tender LNG Producers-Consumers Conference 2015 The LNG Producers-Consumers Conference is an annual event, which started in 2012, and being organised by the Ministry of Economy, Trade and Industry (METI) of Japan and the Asia Pacific Energy Research Centre (APERC). This year Conference (4 th Conference) was held in 16 September 2015 in Tokyo, Japan with a theme Evolving LNG Market with Natural Gas Security. Said conference gathered around 1,000 participants from about 50 LNG producing consuming countries and region. They were (next page) Photo Source : SENER Round One will assign eight exploratory blocks of dry gas over a total area of 900 square kilometres located in the Sabinas-Burro-Picachos basin in Mexico s Coahuila State. Photo Story Source: APERC s Pathways to Shale Gas Development in Asia-Pacific 7

8 LNG Producers-Consumers composed of government officials, company executives, and gas market analysts. The event was graced by Minster Yoichi Miyazawa of METI together with Minister Mohammed Bin Saleh Al-Sada, Ministry of Energy and Industry, Qatar, Vice Minister Jae-do Moon, Ministry of Trade, Industry and Energy, Korea, Dr. Fatih Birol, Executive Director of the International Energy Agency (IEA), and Governor Bill Walker of the State of Alaska, United States..demand for gas is being bumped o by increasing use of coal and renewable energy. Minister Miyazawa, in his opening statement, stressed on supporting the significant changes now transpiring in LNG market such as the increasing spot cargo transaction, relaxation of destination clause in contracts, and the pricing mechanisms. These changes are essential in developing a well-functioning LNG market with more flexibility in contracts. Strengthening gas security, capability to respond to supply emergency in international LNG market, was also underscored within the framework of supply security. Following the ministerial speeches, invited Senior Energy Officials from gas producer and consumer countries made presentations at special session on gas security. Discussions revolved around the increasing concerns on global gas supply security that might potentially happen with supply not able to meet the increasing gas demand due to delays on final investment decisions (FIDS) on gas supply-related projects. The five (5) sessions of the Conference covered several issues and developments in the LNG market and gas supply. Aside from flexibility of contracts and transactions on LNG, equity participation of private companies, and institutional and policy supports from governments of importing countries were also identified as vital measures to contribute to supply security measures. Diversification of supply sources was likewise pointed out as a key element for supply security. The United States shale gas production, which is seen to reach the Asian markets, will boost world gas supply and diversification of supply sources for the consuming countries. Based on IEA, global LNG production capacity is projected to increase by 32% in 2020 coupled with changing pricing formula delinking away from oil. Development of a regional natural gas/lng hub, specifically in Asia, was also highlighted by some (next page) The officials who participated in the LNG Producers-Consumers Conference 2015 includes Minster Yoichi Miyazawa of METI together with Minister Mohammed Bin Saleh Al-Sada, Ministry of Energy and Industry, Qatar, Vice Minister Jae-do Moon, Ministry of Trade, Industry and Energy, Korea, Dr. Fatih Birol, Executive Director of the International Energy Agency (IEA), and Governor Bill Walker of the State of Alaska, United States. Photo Source : APERC website 8

9 speakers. The gas/lng hub could facilitate the development of transparent gas/lng benchmark pricing and regional trading. However, demand for gas is being bumped off by increasing use of coal and renewable energy. As such, LNG must be competitive and offer greater benefits compared with coal and renewables. With gas supply security gaining greater attention and utmost concern, the G7 Energy Ministerial Meeting next year in Japan will tackle such issue including LNG market. Likewise, the APEC Oil and Gas Security Initiative (OGSI), being implemented by APERC, will also seriously address gas supply security in the conduct of Oil and Gas Security Exercise (OGSE) and Oil and Gas Security Forum (OGSF) activities. The Conference shall be continuously conducted as an avenue for constant dialogue between producers and consumers, and to foster mutual cooperation towards common goal of a better global and regional LNG market. Mr. Yoshikazu Kobayashi Mr. Ichiro Kutani Mr. Koji Horinuki Contributors for this Edition Asia Pacific Energy Research Centre Dr. Tetsuo Morikawa Ms. Ayako Sugino Mr. Michael Sinocruz Ms. Elvira Torres Gelindon Editor-in-Chief The Asia Pacific Energy Research Centre (APERC) was established in July 1996 in Tokyo following the directive of APEC Economic Leaders in the Osaka Action Agenda. The primary objective of APERC is to conduct researches to foster understanding among APEC members of regional energy outlook, market developments and policy. Upcoming Event: The 2nd APEC Oil and Gas Security Network Forum The Asia Pacific Energy Research Centre (APERC) is now preparing for the 2nd APEC Oil and Gas Security Network Forum". The forum is expected to be held in Kagoshima City, Japan on March As in the previous, the forum will serve as a venue to form a network of working level officials in the APEC economies and experts from international/regional organizations. Preparation is also underway for the site visit which is tentatively identified in JX Nippon Oil and Energy Staging Terminal Corporation to see their Kiire Terminal. Final details on the forum will be further announced in the next issue. Upcoming Event: APEC Oil and Gas Security Exercise in the Philippines The Philippines will be hosting the next APEC Oil and Gas Security Exercise (OGSE) on 7-9 December The activity is in response to the instructions from the Energy Minsters for APERC to pursue regional cooperation on supply emergency response and to conduct workshops and exercises to assist economies strengthen emergency response measures and policies based on their respective domestic circumstances. APERC already held two (2) OGSE in 2013, the Joint Southeast Asian Exercise in Bangkok, Thailand, and the Indonesia Exercise. The Team of Experts for the OGSE in the Philippines will include experts from IEA, ACE, ASCOPE, HAPUA, ER- IA, Japan and The USA and from the local academe. Further information on the Exercise will be included in the next issue. Fax (+81) Tel (+81) master@aperc.ieej.or.jp 9