Indonesia's environmental law could cut oil production in half

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 17 -- Indonesia’s upstream regulator BPMigas said the country’s oil production could drop to half of its 965,000 b/d target in the 2-3 years it will take the industry to adjust to a new environmental law.

BPMigas Chairman R. Priyono cited one regulation that requires companies to lower the temperature of liquid waste by 5° C. that could adversely impact PT Chevron Pacific Indonesia, which uses steam flood and boils water to produce steam. “If the waste-water temperature is too restrictive, then the steam cannot be produced and used,” he said.

Priyono cited another example in ConocoPhillips’s operation in Belanak oil field, which contains a high degree of mercury. He said a regulation limiting the average mercury concentration to 40 ppm will require the company to redesign its facility.

“The refinery is not available in Indonesia. It’s available among other options in Thailand. If the standards are implemented, the field’s production will decrease by between 28,000-40,000 b/d of oil,” Priyono said.

Oil and gas firms have already signaled their concerns about the new law. CPI said its production could fall by 248,000 b/d, while PT Pertamina EP said its production might drop by 61,000 b/d.

According to analyst IHS Global Insight, reports of a massive drop in oil production will likely resonate with the authorities who suspended Indonesia’s membership in the Organization of Petroleum Exporting Countries in 2008 and are suffering from lower state revenues due to difficulties in increasing crude oil output.

The analyst said, “Pressure by BPMigas and other contractors could thus result in a modification of implementing regulations to the 2009 Environmental Law, due to be finalized in April, to accommodate the most pressing concerns of contractors.”

Contact Eric Watkins at hippalus@yahoo.com.

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