The year 2020 is a very burdensome year for the oil and gas industry, both globally and domestically. Not only because of the drop in oil prices, but the decline in world oil and gas demand due to the COVID–19 pandemic also contributed to weakening investment in 2020.

Based on data from the Special Task Force for Upstream Oil and Gas Business Activities (SKK MIGAS), investment in the energy sector by the end of 2020 decreased by around 31% to USD 22 billion-USD 23 billion or around IDR 310 trillion (assuming an exchange rate of IDR 14,100 per USD).  compared to 2019 which reached USD 31.9 billion.

Meanwhile, for 2021, the Ministry of Energy and Mineral Resources targets investment in the oil and gas sector to increase to USD 18 billion. Throughout the first quarter of 2021, the realization of investment in this sector reached USD 2.4 million. This value decreased by 16.38% compared to the realization of investment in the first quarter of 2020 which amounted to USD 2.87 million.

In terms of production in 2021, SKK MIGAS targets drilling activities to reach 600 activities with oil production of 705,000 bpd or equivalent to 2020 production after experiencing a correction from the initial target of 735,000 bpd.

Based on SKK MIGAS data, until the first quarter of 2021, the realization of oil lifting was 676,520 barrels per day (mbopd) or 96.4% of the target of 705,000 bpd. Meanwhile, gas lifting reached 5,539 MMscfd or 98.3% of the target of 5,638 MMscfd. This value also decreased compared to the realization of oil and gas production in the first quarter of 2020 which reached 728.8 thousand barrels of oil per day (MBOPD) and gas which reached 7,118 MMSCFD.

Meanwhile, SKK MIGAS reported that state revenues for the upstream oil and gas industry until the first quarter of 2021 had reached USD 3.29 billion, or 45.2 percent of the revenue target in the 2021 APBN which was USD 7.28 billion.   Meanwhile, the realization of cost recovery for the upstream oil and gas industry in the first quarter of 2021 amounted to USD 1.73 billion, or around 21.4 percent of the 2021 State Budget target of USD 8.1 billion.

Overall, the performance of the oil and gas sector in the first quarter of 2021 is based on the GDP value of -6.87%. This value has decreased when compared to the performance in the 4th quarter of 2020, which amounted to -6.81% and the 1st quarter of 2020 which amounted to -2.99%.

Meanwhile, we predict that in the 2nd quarter of 2021 its performance will again decline at -6.94%. However, this value is better than the performance in the 2nd quarter of 2020 which was -7.07%. This value is expected to remain stagnant until the end of 2021. The economic conditions that are still affected by the pandemic have made the investment climate still gray for investors.

Graphic 1. Oil and gas sector performance growth in 2018-2021, as indicated from the value of Gross Domestic Product (GDP) (%)

Therefore, the Government provides a few incentives to attract investment in the oil and gas industry. Especially in upstream oil and gas, the government through the Ministry of Energy and Mineral Resources (ESDM) encourages the implementation of policies for the implementation of Enhanced Oil Recovery (EOR) as well as unconventional MNK (Non-Conventional Oil and Gas) exploration which is expected to make it easier for investors. In addition, there is the application of flexibility in cost recovery or gross split, tax holiday, investment credit, and access to upstream oil and gas data.

Meanwhile, the strategy to increase downstream oil and gas investment is mainly carried out through collaborative efforts between the government and business entities for the construction of new refineries (GRR) and refinery capacity building (RDMP).

In addition, simplification of downstream oil and gas licensing, affordable natural gas prices, promotion of integrated oil and gas infrastructure development, and continuing to support the implementation of EDSM Ministerial Decree No. 13 of 2020 regarding the change from diesel fuel to gas fuel.

With these various facilities, the investment climate in the upstream and downstream oil and gas sectors is expected to improve so that their performance will also increase.

On the other hand, the Government has a long-term target to be able to produce 1 million barrels of oil per day (BOPD) and 12 billion cubic feet of natural gas per day (BCFPD) by 2030. To be able to achieve this requires a joint commitment from all stakeholders, both inside and outside the energy sector. Additionally, it takes around USD 187 billion of investment, or around IDR 2,709.6 trillion (exchange rate of IDR 14,490 per USD).