Challenges and optimism in Indonesia's upstream oil and gas investment approaching the end of 2024
As the backbone of national energy security, the upstream oil and gas sector plays a strategic role in ensuring energy supply and as a key driver of economic growth, improving trade balances, and fostering long-term development. Achieving this requires significant investment, with the government setting an annual target of USD 17.7 billion.
Why is upstream oil and gas investment crucial?
Indonesia's reliance on imported oil and gas—reaching 297 million barrels in 2023—has drained the country's foreign reserves by IDR 396 trillion. Meanwhile, domestic oil production only amounts to 221 million barrels annually.
“Increased investment in the oil and gas sector will not only bolster energy reserves but also generate a significant multiplier effect on the economy,” said ReforMiner Institute Executive Director, Komaidi Notonegoro.
He emphasized that upstream oil and gas investment is essential to address macroeconomic challenges. In addition to strengthening national energy reserves, such investments drive economic benefits such as job creation, higher state revenues, and improved fiscal stability.
Investment trends: optimism amid challenges
According to the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), upstream oil and gas investment reached USD 10.3 billion (IDR 162.7 trillion) by October 2024. While still short of the USD 17.7 billion target, this figure shows a slight increase from the same period in the previous year, which recorded USD 10.2 billion. This uptick reflects growing investor confidence in Indonesia’s oil and gas potential. SKK Migas Chairman, Djoko Siswanto, remains optimistic and predicts investments to reach USD 16 billion by year-end.
Challenges in upstream oil and Gas investment
Djoko Siswanto highlighted structural hurdles as key barriers to investment growth in the sector. One major issue is the Domestic Component Level (TKDN) requirement, which has delayed several projects. Additionally, limited rigs, skilled labor shortages, and weather disruptions such as flooding at drilling sites have further impeded progress.
The ReforMiner Institute also pointed to legal frameworks as a persistent obstacle. Despite mandates for revision over the past 16 years, Indonesia's Oil and Gas Law remains unchanged. Cumbersome permitting processes requiring approval from both central and regional governments have hindered upstream oil and gas investments, making legal certainty crucial.
Building Indonesia's energy future
Amid the global energy transition, Indonesia’s upstream oil and gas sector remains relevant. A stable and sustainable energy supply is essential not only for national energy security but also for the country’s economic competitiveness on the global stage.
To ensure long-term success, collaboration between the government and industry players is imperative to overcome existing challenges. Streamlining bureaucracy, strengthening TKDN, and developing adequate infrastructure are critical steps to create an attractive and competitive investment climate.
With the right investments, oil and gas exploration in Indonesia can address energy challenges while serving as a key driver for more inclusive and globally competitive economic growth.
This requires a collective commitment to seize the momentum of 2024 and maximize the potential of the oil and gas sector, delivering tangible benefits for Indonesia’s future. How prepared is Indonesia to rise to these challenges?
Source:
