SCENARIO ANALYSIS OF A GAS FIELD DEVELOPMENT PROJECT IN SOUTH SUMATRA, INDONESIA – RESERVES VOLUME AND GAS PRICE SCENARIOS

• Main Author: Renaldy Jaya Hutauruk, Rene
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/55170
• Institution: Institut Teknologi Bandung

In a challenging period of Indonesia’s oil and gas industry, where its national oil and gas productions have been declining and a number of national strategic projects have stagnated due to changes in the government policies and economic reasons during the low global oil price environment, the recent gas discovery in the Palembang PSC in South Sumatra region has brought new optimism in the country’s upstream oil and gas industry. Under the current trend of Indonesia’s economic growth and rising populations, the country’s increasing demand of energy is looking inevitable, and the government has issued policies in the energy sector to optimize the utilization of national oil and gas productions for domestic market purposes, as well as to encourage the find of new national energy sources in order to reduce dependency on energy imports. The initial gas discovery from the exploration well in the Palembang PSC has a certified 247 BCF of gas resources, and the PSC contractor is currently drilling an appraisal well to prove up a larger gas resource from the discovered gas field. The government policy on domestic gas price cap for the industrial and electricity sectors issued in year 2020 presents the Palembang PSC project development with a challenge on how an upstream project development that still possesses uncertainties on the total gas resource volume and applicable gas prices will progress going forward. The main objective of this study is to explore how the PSC contractor evaluate and perform decision making under several uncertainties within the project and what types of government incentives would be required for scenarios that are deemed uneconomic to be executed. This study attempts to provide simulations to the expected project output by performing scenario analysis using the low, base and high case scenarios on the gas resource volumes, development, capital and operational expenses and gas market allocations, utilizing the available primary data and information and secondary data produced from oil and gas cost estimation software and similar field size developments data. The level of gas resource volume of 247 BCF, 1,060 BCF and 1,998 BCF have been determined for the low, base and high case scenarios respectively, with variances on the development, capital and operational expenses depending on the size of the resource volumes. Under several assumptions made to the inputs of each project scenarios, part of the gas resource volumes under the base and high case scenarios have been allocated for export to the Singapore market, while the whole gas resource volume under the low case scenario has been allocated solely to the domestic market. Domestic and export gas prices in this study have been assumed to be US$4.00/MMBtu and US$6.50/MMBtu respectively. The economic evaluations using the PSC cash flow model on each of the three scenarios have resulted in 8.42% contractor IRR and –US$13,175,000 contractor NPV for the low case scenario, 20.95% contractor IRR and US$367,288,000 contractor NPV for the base case scenario and 21.12% contractor IRR and US$742,803,000 contractor NPV for the high case scenario. The scenario analysis in this study has shown that under the low case scenario, the project will not be economically feasible as it results in financial metrics below the minimum required investment threshold by the PSC contractor. This study has also proposed a number of government incentive alternatives to improve the economics of the low case project scenario, as well as providing clear evidences that obtaining higher gas price to the export market and early PSC extension are critically important to the overall project economics and optimum returns to both the PSC contractor and the government.