Industry Calls for Government Support amidst the Covid-19 Pandemic and Low Oil Gas Price

The Covid-19 pandemic has smothered global oil demand and the price war between Saudi Arabia and Russia has pushed the oil price down to around US$ 30 per barrel. Though it is not the first-time the oil price has reached such a low level, the current Covid-19 pandemic has made the situation more complex.

For this year, the Indonesia Government has set the target of oil and gas lifting at 755,000 barrels of oil per day and 1.19 million barrels oil equivalent per day for gas. In terms of revenue, the target for the oil and gas sector is IDR 127.3 trillion with the ICP (Indonesian Oil Price) indicator at US$ 63 per barrel. Most industry players agree that to achieve the target would be challenging amidst the situation brought by both low oil and gas price and the Covid-19 pandemic.

One of the potential effects is that many oil and gas companies will reevaluate their existing projects as well as become more selective in evaluating their new projects. They will hold further investment and see how long the oil price will stay at these low levels because they set the oil price at a certain level when calculating the project economics.

The low oil price also cuts down the project’s investment rate of return (IRR) thus the oil and gas companies may delay their projects including the exploration activities. Ultimately, this will have an effect on national oil and gas lifting.

As for the Covid-19 pandemic, the Indonesia Government has enacted some measures of social distancing to curb the spread of the disease. This will inevitably affect the way work being carried out in the oil and gas projects. The Upstream Oil and Gas Special Task Force (SKK Migas) had issued a letter for relevant local governments in respond to the pandemic and in order to sustain upstream activities as one of the national vital objects in regard to state revenue and energy security.

Through the letter, SKK Migas has taken anticipatory measures to prevent the spread of Covid-19, among others:

  • The PSC Companies is limiting the number of workers in the field to that only workers who directly involved in the operation;
  • The PSC Companies is changing the field work schedule to be 21:21 (three weeks) or 28:28 (four weeks) or other work schedules depending on the certain field conditions.

In addition, the limitation to people’s mobilization will hinder some activities in the project such as obtaining permits, etc. Many industry players are cautious that these situations might hinder the oil and gas lifting target achievement.

The Indonesia Government needs to set certain policies in order to attract oil and gas investment as well as supporting the current industry players in sustaining their operations; this may include incentives in the taxation or other regulations.  (*)

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Posted by Niza Upperline