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Wood Mackenzie Says Indonesia’s CBM Sector Presents Long-term Market Opportunities for Successful Industry Players
SINGAPORE/EDINBURGH, 15th September 2010 – Wood Mackenzie’s latest South East Asia report entitled ‘Making the case for Indonesian CBM’, assesses the potential of the fledgling coal bed methane industry. The report says that CBM could eventually comprise 15% of Indonesia’s gas supply and that the country could prove to be the largest source of unconventional gas in South East Asia. In the long-term, CBM industry leaders could secure significant market shares and some companies are already positioning themselves for the opportunities.
Upstream analyst, Jamie Taylor says, “In our most optimistic scenario, Indonesia could produce CBM at an initial rate of 22 million cubic feet per day (mmcfd) by 2013, ramping up to almost 900 mmcfd in 2020 and 1,300 mmcfd in 2025. In practice, production growth will be slower than this, although the long-term prospects remain attractive. As conventional domestic gas supply starts to decrease around 2020, the leading CBM players should be well positioned to take advantage.”
Graham Tyler, Head of Wood Mackenzie’s South East Asia Gas & Power service explains, “There are substantial, long-term market opportunities for CBM. Sumatra CBM has access to a range of markets, with pipeline access to West Java, Batam and Singapore. West Java and Singapore are particularly attractive, given their dependency on LNG supply in the long-term. Exporting CBM as LNG is an option from the Kutei Basin, given the capacity expected to be available at the Bontang liquefaction plant.
The report outlines the challenges which will impede large-scale CBM developments in the next 10 years. These include uncertainties in fiscal terms for CBM production; a slow approvals process; lack of clarity on ownership rights where acreage overlaps with coal concessions; the environmental impact of operations; and the high costs of CBM production under current contract terms.
There will also be significant competition from conventional gas. Tyler explains, “In the short-term, CBM drilling is scheduled based on the requirements of sales contracts, and development will be constrained by limited pipeline infrastructure and competition from other supply sources. However, in the medium to long-term, CBM could alter the dynamics of the Indonesian gas market by providing volumes to meet Java and Sumatra demand. This would reduce the need for LNG via the Domestic Market Obligation (DMO), under which gas producers must allocate at least 25% of new production for local needs. Other new Indonesian gas suppliers would also benefit by being able to target the wider Asia Pacific Market.”
There are now 20 active CBM Production sharing contracts across four main areas in Sumatra and Kalimantan, operated by companies of different stature. Taylor says, “International and local players have started to secure footholds in the most prospective basins, anticipating the long-term market opportunities. Medco Energi has started a study on the Rambutan project - the most advanced CBM project in South Sumatra. Dart Energy has emerged as the most experienced CBM operator in Indonesia and VICO appears to be well placed to develop any CBM it proves up in East Kalimantan. ExxonMobil and other small indigenous companies have also taken positions.”
In summary, Wood Mackenzie believes that the potential in Indonesia’s CBM industry should not be underestimated, despite the near-term development challenges. In the long-term, it will play a significant role in supplying the domestic market, providing commercial opportunities for investors and potentially changing the gas market dynamics of Asia Pacific.