Oil sector not yet ready to apply cabotage rule

Amahl S. Azwar, The Jakarta Post, Jakarta | Business | Thu, May 23 2013, 12:43 PM

Indonesia, a former member of the Organization of the Petroleum Exporting Countries (OPEC), may experience a further decline in its crude oil production as the exemption for oil and gas vessels from the cabotage rule is set to expire in 2015, a top official has said.

Interim upstream watchdog SKKMigas Rudi Rubiandini said on Wednesday that industry was still lacking the capability of producing several types of vessels in the oil and gas industry, including seismic vessels, drilling ships and cable-pipe laying ships mainly used for exploration.

The cabotage rule, as specified in the 2008 Shipping Law, requires that all vessels operating in Indonesian waters should be owned by local companies.

In 2011, however, the Transportation Ministry exempted oil and gas vessels from the rule until 2015.

The cabotage law was introduced to enable the local shipping companies to take advantage of the growing shipping business.

“Currently, there are only three drilling ships using national flag vessels. In reality, however, at least 64 drilling vessels would be needed until 2015 to meet the exploration activities required to boost natural resources,” Rudi said in a statement.

Rudi, also a former deputy energy and mineral resources minister, said that oil and gas contractors would need to work hard to meet each of their output targets by the end of this year amid the maturation of the ageing field.

The implementation of the cabotage rule, he said, would be counterproductive to the expectations as well as endangering the government’s need to increase upstream exploration activities in a bid to boost future oil and gas production.

In the proposed revision of the 2013 state budget, the government has requested to lower oil production target by the end of this year to 840,000 barrels per day (bpd) or down 6.7 percent from the original target.

Natural gas production target also has been requested to be lowered to 1.24 million barrels of oil equivalent per day (boepd) or down 8.8 percent from the original target.

“We [SKKMigas] fully support the implementation of the 2008 Shipping Law as the means to increase the capacity of the national shipping industry. We must note, however, the real situation in the field,” said Rudi.

The top official, however, did not go into details on how much the rule could cut the country’s production.

In 2011, before the Transportation Ministry exempted oil and gas vessels from the obligation to use the national flag within the country’s maritime territories, the Energy and Mineral Resources Ministry predicted the rule would cut the oil production by 156,000 bpd.

In the first three months of this year, Indonesia, which once reached a peak output of 1.6 million bpd in 1995, saw its average oil production at 830,900 bpd.

President Susilo Bambang Yudhoyono’s administration, however, remained optimistic to reach its ambitious oil target of 1 million bpd next year by relying on the American giant ExxonMobil Indonesia-operated Cepu Block in East Java, which is expected to contribute 165,000 bpd of crude oil to the national output.

Currently, out of 672 vessels supporting the operations sector in the upstream oil and gas industry, only 20 vessels or 3 percent carry foreign flags, which mean 97 percent of the maritime vessels across the archipelago use the Indonesian flag.



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