IPA Appreciated the Government’s Recognition of the Importance of This Industry
“It is an honor to be here at the 41st Indonesian Petroleum Association Convention and Exhibition, and to be addressing all of you today. Thank you for joining us over the next three days.
For 46 years, the IPA has worked in partnership with the government throughout which we have remained in communication, nurtured relationships and worked together in support of Indonesia’s upstream oil and gas industry. This is the spirit in which the IPA was established in 1971, and we continue in today.
Today, I am very proud to open the 41st IPA Convention and Exhibition. This year’s event has over 1,500 convention participants from 16 countries, 133 companies are opening booths at the exhibition section and we expect over 20,000 visitors to attend. Our industry professionals and students will present 119 papers and 66 posters in the technical sessions and it is encouraging to report that we received 680 abstract papers to select from, which illustrates the depth of expertise and enthusiasm for the sector here in Indonesia. In addition to the technical sessions, we have three plenary sessions and one special session planned to discuss current issues around our business. I’ll come back to this later.
We are three years into a paradigm shift in our industry brought about by lower oil price driven by growth in supply and some dampening in global demand. If you are net importer of oil as Indonesia is, then you might say – what’s the problem?
With its 260 million population, 11% of the country living below the poverty line and average economic growth of 5% in the past five years – this country has both scale and potential.
And for this growth, it needs energy – of that there is absolutely no doubt. At the IPA we are very clear that oil and gas supply is an enabler for Indonesia’s growth ambitions. The government’s electrification project needs to be underpinned by energy supply. Where will it come from, what will it cost, how do we ensure it shows up on time? These are the challenges for any government managing its energy supply to ensure it can maintain pace with the growth in energy demand.
Wood Mackenzie recently estimated the total energy costs to underpin this country’s economic growth over the next 15-20 years to be at $200-250bn split across upstream, midstream and downstream. I think we can all agree this is a very large number. The government knows government funding is not best spent covering all of this. You can see this through the decision to bring IPP into the country as well as the continued use of private sector funding for resource extraction. Ensuring investment is attracted to Indonesia should be forefront on their minds.
Given this context, this year’s theme is “Accelerating Reform to Re-Attract Investment to Meet the Economic Growth Target”. I want to highlight two very clear statements that IPA believes:
1) energy supply is fundamental to the economic growth of Indonesia.
2) reform is required by all participants to be able to deliver the energy supply needed.
Last year we discussed the need for changing how we work so as not to lose the big picture of ensuring affordable energy supply for Indonesia. Four key areas were identified that needed attention – Indonesian competitiveness for investment on a global scale, inter-sectoral reform, the importance of gas production and the role of the industry as a catalyst for regional development.
In opening this year’s convention, I am pleased to say that much has been done since last year. The government is in action and making changes fast – looking to remove bureaucracy to drive efficiency, manage expiring PSCs to sustain production, and attract new investment. We appreciate the government’s recognition of the importance of this industry as an enabler of growth through the multiplier effect it brings to national and regional economies. Improvements in efficiencies are also evident with the reduction in the number of permits required by operators. We welcome these improvements to reduce the time and resources required to develop new fields. It is also clear that the government wants to ensure future energy security and the member companies of the IPA are committed to work in partnership to make this happen.
Oil and gas companies around the world are also in action. Only companies that can adapt will win. As the price of crude oil continues to be depressed so energy companies will need to find ways to drive costs lower, adjust their investment profile to focus on low-risk, incremental projects and upgrade portfolios through acquisitions and / or divestments. The cost base is being aggressively challenged. Across the globe, overhead and headcount have been reduced – by more than 440,000 people as of last quarter. Contracts have been re-tendered or renegotiated. Now is an opportunity and a need for the industry to significantly reshape how it works – becoming more streamlined and more efficient through digitization, simplification and standardization.
But, some key questions still need to be answered - how does Indonesia compare to others when it comes to competing for global capital investment? What will make the country more competitive? What is the true value of security of energy supply to Indonesia? What regulatory reforms are needed to re-attract investment back to Indonesia? Other uncertainties such as fiscal terms and the tax regime also need to be addressed so that Indonesia can be more competitive on a global basis.
It is clear that industry and government must continue to work together to address these challenges and attract global capital. While Indonesia continues to be politically stable and economically resilient with a growing energy demand, it needs to position itself as a competitive, efficient and attractive option to enable us – the investors - to ensure that capital comes here rather than to other countries around the world. This year we are continuing the discussion by asking ourselves how we can “accelerate reform to re-attract investment to meet the economic growth target”.
The IPA convention has the privilege of bringing together a diverse group of distinguished speakers combined with an audience from across the country and from overseas – as well as operators, service companies and also central and local government representatives and key industry figures from the energy ministry and other ministries. It is the combination of all of you that will create strong and challenging debate over the next few days.
The Plenary sessions and special session this year bring together leading figures from government and industry to discuss these current concerns:
- Plenary 1 this afternoon will discuss how to attract investment amidst the global capital efficiency drive,
- Tomorrow Plenary 2 will look at the multiplier effect and how the industry contributes to local economic growth.
- Tomorrow afternoon Plenary 3 will examine the priority reforms that are needed to re-attract investment into this critical sector for Indonesia.
- Finally, on Friday morning the Special Session is a forum discussion by the IPA and other associations working hand in hand to identify solutions to these and many other issues facing our sector.
The IPA is committed to working with government to improve competitiveness and efficiency and growing the Indonesian upstream industry for the benefit of all stakeholders. We believe that the resource potential remains positive with multiple basins and new exploration targets in many regions of the country.
We look forward to a constructive and successful Convention in a spirit of true cooperation and partnership to find solutions and accelerate reforms to re-attract the investment needed to build a sustainable industry for the benefit of the people of Indonesia.
Thank you once again to all attendees for being here this morning and I look forward to meeting with many of you and engaging in open and challenging discussions over the next three days.”