Shale Gas Still a Distant Ambition for Indonesia

A drilling rig exploring for shale gas of oil company Chevron on June 11, 2013 in a village of Ksiezomierz in south-eastern Poland. (AFP Photo/Janek Skarzynski)

A drilling rig exploring for shale gas of oil company Chevron on June 11, 2013 in a village of Ksiezomierz in south-eastern Poland. (AFP Photo/Janek Skarzynski)

The so-called shale gas revolution in North America has had a game-changing impact on the world’s energy situation, flooding the market with supplies and driving prices down.

But in Indonesia, the benefits still remain to be seen.

The Energy and Mineral Resources Ministry may claim the country’s abundant shale gas reserves are ripe for exploitation, but the fact remains that it could take years, even decades, before it generates significant benefits for the country.

Shales is fine-grained sedimentary rock that can contain natural gas and petroleum embedded between its layers. After drilling into shale, water is pumped in and the ensuing pressure forces hydrocarbon particles to be released and collected for processing and refinement.

The energy ministry estimates that Indonesia holds some 574 trillion cubic feet (16.3 trillion cubic meters) of shale gas potential reserves.

But for all the claims of plenty, only a single contract has been awarded so far.

The fundamental problem in the development of shale gas is the higher cost compared to conventional natural gas.

Shale gas has had a massive impact in North America simply because the price of natural gas has increased to the point that the former is more economically feasible.

Geographical conditions in Indonesia exacerbate the high cost of shale gas exploitation. Due to requirements to go deeper, the cost of drilling per well for shale gas in Indonesia was estimated at $8 million, well above the average cost in North America of $2 million to $3 million per well.

Widhyawan Prawiraatmadja, a deputy at oil and gas regulator SKKMigas and a seasoned petroleum engineer, said the government did not have a favorable financing scheme for the development of shale gas.

“[Companies] demand the government to put an incentive up front,” he said.

Ignatius Tenny Wibowo, the president director of Pertamina Hulu Energi, a subsidiary of Pertamina tasked with developing shale gas, highlighted the lack of infrastructure as a major obstacle.

Due to its extracted state, natural gas must be transported by pipeline or converted into liquid form.

The combined length of the pipeline network under Pertamina and Perusahaan Gas Negara, a state-controlled gas distributor, was around 5,000 kilometers, nothing compared to the four million kilometers of gas pipes spanning the United States.

Still, it is difficult to ignore the abundance of potential reserves in Indonesia.

“Indonesia does have the potential, but I think it would take years before we could see its impact,” said Victor Shum, managing director at IHS Consulting.

Ming Teck Kong, a Singapore-based principal at Boston Consulting Group, said he believed the rate of depletion in other energy sources meant Indonesia would have to look to its shale gas.

“When you’re moving into a shortage situation, one of the big questions is, where are there potentially new economic sources of energy? … And when people look around the world, they look and see very frequently shale gas.”