TOWARD ZERO FLARING IN INDONESIA:

DEVELOPING POLICY ON GAS FLARE REDUCTION

GGFR STEERING COMMITTEE MEETING

World Bank – Washington DC, 30 November 2011

PRESIDENT’S DELIVERY UNIT

FOR DEVELOPMENT MONITORING AND OVERSIGHT (UKP4)

INDONESIA 2020 (1/2)

2

OUR ANNUAL TARGET OF

ECONOMIC GROWTH:

7%

BUT IT HAS TO BE A

GREEN 7% GROWTH

WITH SUPPORT

FROM NATURAL

RESOURCES

3

INDONESIA 2020 (2/2)

OUR NATIONAL EMISSION

REDUCTION TARGET OF

26% from state funds

FROM 2950 millions ton of CO2e

TO 1761 millions ton of CO2e

41% with international support

4

Synchronisation

Co

ns

iste

nc

y

UKP4,

BAPPENAS &

MoF

Action Plan 369 Action Plans

UKP4 MAINTAINS CONSISTENCY AND SYNCHRONISATION

ONE OF ENERGY ISSUES IN INDONESIA

5

PLENTY

OF GAS

LIMITED

SUPPLY TO

GAS MARKET GAS FLARING

GAS FLARING MAP IN INDONESIA

6

• Year 2008 estimated

about 270-350

MMCFD was flared,

equivalent to 10% of

annual Indonesian

consumption (36

bcm in 2009.

Indonesia ranked #

7-10

• Year 2009 estimated

357.5 MMSCFD,

equivalent to $500

million in lost

revenues including

lost government

share

Source: National Geophysical Data Center & The World Bank

WHY GAS FLARE MATTERS

7

Flared gas will help meet

increasing domestic demand for

gas along with Indonesia’s rapid

economic growth

Black Carbon emitted

during flaring increases the

warming effect of flaring

Indonesia venting and flaring

adds 17 million tons CO2 to

atmosphere every year and

wastes million dollars of energy

resources

Flared gas utilization will also help reach the

emission reduction target of 26% up to 41%

by 2020

OUR POLICY INSTRUMENT

8

PLENTY OF

GAS

GAS FLARING

ZERO

FLARE

REDUCTION

POLICY

LIMITED ACCESS

TO GAS MARKET

Policy Snapshots:

• Recovery gas flare target is 30-

60% per year

• Zero flare by 2025 as part of EMR

action plans

GAS FLARING MONETIZATION

Location: Banyu Urip Field, East Java

With assistance from GGFR, the

instrument aims at addressing:

• Disparity of gas flaring financing

across Indonesia so that it will all be

economically viable

• Business perspective profitable

industrial practice as incentives

• Sustainability on both levels:

– Gas flaring

– Environmentally-friendly energy

supply

Case in Point:

PHE Offshore North

West Java (~zero

flare since 2009)

EXSISTING LEGAL AND REGULATORY FRAMEWORK GGFR assesement

10

No single

regulatory

agency Un-defined

Technology

selection

Unspecified

Limitations

on gas flaring

No Flaring

permits system

Specific incentives

for project

development not

provided

No measurement,

monitoring and

reporting

Imp

act

Easiness to implement

High

Low

Hig

h

No mandatory requirements

for flared gas reduction

ROAD TO GAS FLARING MONETIZATION

11

Action Plans

1. Acceleration and advancement of

ZERO FLARE policy

2. Stocktaking in oil fields across

Indonesia for potential gas

monetization

3. Acceleration of gas flare utilization for

environmental purposes, particularly

socialization of Clean Development

Mechanism (CDM) for CO2 reduction Progress

1. Framework of regulation for gas flaring utilization has been drafted

2. Stocktaking has already been done in 2009: Indonesia’s current volume

total of flaring is 357,5 MMSCFD and the flaring sites are spread in 13 oil

blocks across Indonesia

12

UKP4’s ROLE IN DEBOTTLENECKING:

ACCELERATING ZERO GAS FLARE POLICY

1

Nov 2010 Dec 2010

Dec 2010

Feb 2011

Mei 2011 Jun 2011

Sep 2011 Nov 2011

1st Vice Presidential (VP) Meeting on

National Gas Policy, we highlighted Gas

Flare Monetization (GFM)

Minister of Environment (MoE)

responded to our letter, explaining his

positions on GFM and concerns

about CDM

UKP4 intervention

2012

onwards

Minister of Energy & Mineral Resources

responded to our letter, explaining his

progress on GFM and their continuing

cooperation with GGFR

Government workflow

2nd VP Meeting on

National Gas Policy,

we brought up

MoE’s concern and

discussed potential

recommendations

3rd VP Meeting

also discussed

progress on flare

gas utilization

plan and policy

planning

EMR Ministry cooperated with GGFR & successfully

completed 3 stakeholder workshops on flaring &

venting policy in Indonesia. EMR Ministry ready to

pass the drafted regulation soon.

Government workflow

2

3

4

5 6 7 8

National GHG Emission Reduction Action Plan Launched on September 20th 2011

Presidential Regulation 61/2011 –

National Action Plan for GHG Emissions

Reduction (RAN-GRK)

– implements targets of reducing GHG

emissions by 26% by 2020

– Annex II: Supporting Activities requires

“monitoring of the implementation of the policy

on reducing the volume of flare gas burning”

over the period to 2014

13

14

Towards

Zero Gas

Flare

Indonesia

GAS FLARE REDUCTION PROGRAM 2025

15

Year

Gradual decrease facilitated by 24 MMSCFD

gas utilization per year, resulting in total gas

flared of 28,33 MMSCFD and remaining gas

flared as minimum as 4,33 MMSCFD

Utilization channels:

LPG, CNG, Gas Lift, and

Reinjection

Source: EMR Ministry

PROJECTED POLICY OUTCOMES

16

TOTAL OF POTENTIAL FLARED GAS REDUCTION

Total current flared gas:

357.5

Utilization:

183.6

Remaining flared gas:

173.9

Source: EMR Ministry

Year 2009

2011 MONTHLY FLARED GAS TRACKING BY NATIONAL OIL AND GAS IMPLEMENTING BODY

17

240.00

250.00

260.00

270.00

280.00

290.00

300.00

310.00

JAN FEB MAR APR MEI JUN JUL AGT SEP OKT NOV DES

Cu

mu

lati

ve F

lare

d G

as [

MM

SCFD

]

281,5

MMSCFD

ATTRACT THE INDUSTRIES

18

Provides

Economical as

well as

Environmental

Incentives

19

CASE IN POINT

PERTAMINA HULU

ENERGI OFFSHORE

NORTH WEST JAVA

(PHE ONWJ)

Zero Gas Flare

Best practice in Indonesia, so far

Spans from North of Cirebon to Seribu Islands

11 Oil Platforms & Central Plant 1 Floating Storage Offloading Unit 3 Onshore Receiving Facilities 171 Normally Unmanned Installations

Pertamina Hulu Energi Offshore North West Java (PHE ONWJ) is the operator of this PSC, transferred from BP in 2009

Facilities include 670 wells, 170 piers, 40 refineries & service stations, and 1600 km underwater pipes

Source: PT Pertamina

PHE ONWJ

CENTRAL PLANT Very MINIMUM flare

almost unnoticeable

ZERO FLARE PRACTICE IN INDONESIA

Source: PT Pertamina

PHE ONWJ

FLOATING STORAGE

OFFLOADING UNIT

1 Million Barrel per Day

ZERO FLARE PRACTICE IN INDONESIA

ZERO

FLARE Source: PT Pertamina

ZERO FLARE PRACTICE IN INDONESIA

CILAMAYA ORF (ONSHORE RECEIVING FACILITIES)

Location: 6 14’31.49202 S, 107 35’26.08716 E

Zero Flare as a Necessary Practice

Through Vent Recovery Unit Unplanned Shut-down as a Catalyst Low Shutdown Low Flare Low Flare Better Oil Production

Source: PT Pertamina

Highlights: Zero Flare as an Economic Company Strategy Emission Reduction as one of the Key Performance Indicators, formally in 2011

ZERO FLARE PRACTICE IN INDONESIA

PHE ONWJ

ONSHORE RECEIVING

FACILITY (ORF)

Potential Floating Storage

Receiving Unit (FSRU) Site

Pipes for Gas Power Plant

(flare gas utilization)

Source: PT Pertamina

25

UKP4’s NEXT STEPS FOR ACCELERATING ZERO FLARE

1

Nov 2010 Dec 2010

Dec 2010

Feb 2011

Mei 2011 Jun 2011

Sep 2011 Nov 2011

1st Vice Presidential (VP) Meeting on

National Gas Policy, we highlighted Gas

Flare Monetization (GFM)

Minister of Environment (MoE)

responded to our letter, explaining his

positions on GFM and concerns

about CDM

UKP4 intervention

Minister of Energy & Mineral Resources

responded to our letter, explaining his

progress on GFM and their continuing

cooperation with GGFR

Government workflow

2nd VP Meeting on

National Gas Policy,

we brought up

MoE’s concern and

discussed potential

recommendations

3rd VP Meeting

also discussed

progress on flare

gas utilization

plan and policy

planning

EMR Ministry cooperated with GGFR & successfully

completed 3 stakeholder workshops on flaring &

venting policy in Indonesia. EMR Ministry ready to

pass the drafted regulation soon.

Government workflow

2

3

4

5 6 7 8 Next Steps in

2012

Next

Steps

in

2012

Strategically select and integrate

GGFR’s recommendations into the

KPI of all related ministries by early

2012 through the Presidential

Directives, particularly:

• Issue Ministerial Regulation on

Gas Flaring Policy by mid 2012

• Align supporting and relevant

policies from related ministries

by the end of 2012

• Implement few pilot projects

by the end of 2012

26

UKP4

Provide Umbrella

Policy 1

Detail Program/

Action Plan 2

Progress Tracking

3

Human Capacity

Development 4

MOVING FORWARD

THANK YOU

PRESIDENT’S DELIVERY UNIT

FOR DEVELOPMENT MONITORING AND OVERSIGHT

(UKP4)

GGFR STEERING COMMITTEE MEETING

World Bank – Washington DC, 30 November 2011

APPENDIX

28

Onshore Offshore All

Median block size (mmscfd) 1.8 7.3 3.6

Share of 5-largest flaring blocks in total flaring 66% 76% 46%

Share of 5-largest flaring blocks in oil prodn 13% 73% 22%

Blocks flaring <5mmscfd 21 8 29

MIGAS data (2004) reported in GGFR Associated Gas Survey (2006)

Existing legal and regulatory framework (1)

by GGFR & Team

Regulatory agency No single regulatory agency. MIGAS, BP MIGAS and Ministry of Environment all have limited regulatory responsibilities with regards to gas flaring

Technology selection

General obligation to use environmentally-friendly technologies

Limitations on gas flaring

PSC requires associated gas is utilised if ‘economic’, but no further detail is provided and this does not appear to be applied in practice.

BP MIGAS may take associated gas that is not utilised for free

Environmental regulations specify minimum opacity for flared gas and prohibit venting except for temporary and operational exclusions defined in Regulation 13/2009

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The format for the summary follows the framework laid out by DG MIGAS

Existing legal and regulatory framework (2)

Flaring permits No formal permitting system appears to be in place

Mandatory

requirements for

flared gas

reduction

All routine and continuous flaring to be eliminated by

2025 (in accordance with GOGII)

Incentives for

project

development

No specific fiscal or PSC incentives are provided for

flared gas utilisation projects

There is uncertainty over the allocation of revenues

from sales of CERs through the CDM

Measurement,

monitoring and

reporting

MIGAS collects data on flaring by company, but

volumes are mostly estimated and appear unreliable

Operators are obliged to report emissions from

flaring (and other sources) to Ministry of

Environment

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