Study Shale Gas 210 Indo

An IHS CERA Multiclient Study
The Unconventional Frontier

Indonesia:
Prospects for Shale Gas and CBM
An IHS CERA Multiclient Study The Unconventional Frontier—Indonesia
TABLE OF CONTENTS
List of Contributors........................................................................................... iv
List of Figures and Tables.................................................................................. v
Executive Summary
Headline Conclusions .................................................................................... ES-2
Phase I: Geological Framework.................................................................. ES-3
Phase II: Costs, Production Profiles, and Aboveground Issues.................. ES-4
Phase III: the Future of Unconventional Gas in the Indonesian Market
Context........................................................................................................ ES-4
PHASE I: GEOLOGICAL FRAMEWORK, RESOURCE POTENTIAL, AND

SUBSURFACE RISK
Introduction........................................................................................................ I-1
Play Assessment and Resources Estimates Methodology: How Much Gas-in-
Place in Indonesia?............................................................................................ I-1
GIP Estimates by Play: The Bottom Line........................................................... I-3
Risking and Ranking: Understanding the Critical Elements of Play
Assessment........................................................................................................ I-5
Results of Risk Analysis: Not All Plays Have Equal Quality............................... I-9
Summary of Regional Play Assessments......................................................... I-10
Understanding the Main Areas of Potential Unconventional Gas
Production..................................................................................................... I-10
Conclusions of the Analysis of the Geological Framework and Play
Assessment...................................................................................................... I-29
PHASE II: PRODUCTION POTENTIAL OF INDONESIA’S UNCONVENTIONAL

GAS—REGULATORY FRAMEWORK, ABOVEGROUND RISKS, ACTIVITY,
COSTS, AND PRODUCTION CAPACITY
Introduction....................................................................................................... II-1
Context: Regulatory Environment and Industry Activity................................... II-2
Unconventional Gas Regulatory Environment .............................................. II-2
Unconventional Gas Licensing and Operational Activity .............................. II-3
Productive Capacity Methodology.................................................................... II-4
From GIP to Net Recoverable Resource........................................................ II-4
Risking the Resource: A Scenario Approach................................................. II-5
Estimating Production Potential..................................................................... II-7
Development Costs........................................................................................ II-7
Potential Resource............................................................................................ II-8
Productive Capacity ......................................................................................... II-8
Impact of Timing on Productive Capacity Outlooks ...................................... II-12
Indonesia’s Unconventional Gas Low Case Outlook by Region..................... II-15
Sumatra........................................................................................................ II-16
Kalimantan .................................................................................................. II-20
Java.............................................................................................................. II-22
Papua........................................................................................................... II-25
i
© 2012, IHS CERA Inc.
No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

The Unconventional Frontier—Indonesia An IHS CERA Multiclient Study
Indonesia Unconventional Gas Productive Capacity Outlook Summary........ II-26

Overview...................................................................................................... II-26
Productive Capacity Outlook....................................................................... II-29
PHASE III: THE FUTURE OF UNCONVENTIONAL GAS

IN THE INDONESIAN DOMESTIC AND EXPORT MARKET CONTEXT
Introduction...................................................................................................... III-1
Indonesia’s Large Potential Unconventional Gas: Overcoming Obstacles...... III-1
Demand Outlook: Growing but Concentrated................................................. III-2
Economic Growth Outlook............................................................................ III-2
Energy Policy Direction.................................................................................... III-4
Energy Mix Outlook for 2025 and Natural Gas Policy................................... III-4
Infrastructure Development........................................................................... III-8
Domestic Gas Demand Outlook................................................................... III-9
Geographical Outlook................................................................................. III-10
Key Insights: Matching Supply and Demand................................................. III-12
Key Insights: Infrastructure development....................................................... III-20
Current Pipeline Developments.................................................................. III-22
LNG Import Terminal Development............................................................. III-22
Key Insights: Comparison of Supply Costs................................................... III-22
Key Insights: Unconventional Gas for LNG Exports...................................... III-28
Outlook for the Asian LNG Market.............................................................. III-28
Competitive Position of Indonesian Unconventional LNG ......................... III-30
APPENDIX A:
PRODUCTION POTENTIAL: METHODOLOGY
Play-Specific Factors....................................................................................... A-1
Plateau Probable Production: The Key Parameter........................................... A-1
Productivity Potential....................................................................................... A-4
Time to First Production................................................................................... A-5
Second- and Third-Order Risks: Ramp-Up and Decline.............................. A-6
Activity: Wells Drilled, Rig Count, and Capex............................................... A-6
APPENDIX B:
WELL COSTS FOR INDONESIAN UNCONVENTIONAL GAS DEVELOPMENT
Types of Wells................................................................................................... B-3
Development Well Cost Modeling Assumptions.............................................. B-3
Regional Cost Differences Due to Equipment, Labor, and Services Markets.. B-4
Indonesian Shale Gas Development Costs at the Play Level.......................... B-6
Predicting Development Well Costs................................................................. B-9
APPENDIX C: SUPPLEMENTARY TABLES
ii
APPENDIX D:
INDONESIA UNCONVENTIONAL OIL AND GAS DEVELOPMENT:
REGULATORY DRIVERS AND CHALLENGES
Introduction ..................................................................................................... D-1
Government Policy/Public Opinion.................................................................. D-1
Land Access..................................................................................................... D-2
Business Terms................................................................................................ D-4
Downstream Infrastructure Availability............................................................. D-5
Water Availability and Management................................................................. D-5
Water Administration and Legal Regime.......................................................... D-6
Broader Regulatory Issues............................................................................... D-7
The Domestic Market Obligation ................................................................. D-8
Environmental Regulation............................................................................. D-9
iii

LIST OF CONTRIBUTORS
Project Leadership
Paul Markwell, Senior Director, Upstream Research and Strategy (Project
Director)
Roberto Futuro, Senior Director, Product Management
Jan Roelofsen, Senior Director, Geosciences, Unconventionals
Shankari Srinivasan, Managing Director, Global Gas
Editor
Laurent Ruseckas, Senior Associate, Global Gas
Project Team
Didier Arbouille, Basin Database Manager
Basel Asmar, Associate Director, Upstream Research
Prithiraj Chungkham, Principal Researcher, Unconventionals
Antonio Dimabuyu, Regional Manager Southeast Asia
Keith Eastwood, Senior Associate, Oil and Gas Production
Dylan Mair, Director, Far East Information and Insight
Wolfgang Moehler, Director, Global Gas and LNG Research
Benjamin Morel, Senior Consultant
Cahir O’Neil, Senior Account Executive, Asia Pacific
James Ooi, Director, Gas and Power Research
Francois Rosselet, Senior Researcher, Unconventionals
Rina Rudd, Geologist, Southeast Asia
Indra Suryata, Business Development Executive, Southeast Asia
The authors are also extremely grateful to other members of the IHS organization
not mentioned above who have contributed to this study. Linda Sanders of IHS
CERA’s Content Management team deserves special recognition.
iv
LIST OF FIGURES AND TABLES
Phase I: Geological Framework, Resource Potential, and Subsurface Risk
List of Figures
• Figure I-1: Location Map of Shale Gas and CBM Plays in Indonesia
• Figure I-2: Distribution of Shale Gas GIP by Region in Indonesia
• Figure I-3: Distribution of CBM GIP by Region in Indonesia
• Figure I-4: Distribution of Shale Gas GIP Resources by Geological Age
• Figure I-5: Average Risk Shale Gas Plays by Region
• Figure I-6: Average Risk Shale Gas Plays by Geological Age
• Figure I-7: Average Risk of CBM Plays by Region
• Figure I-8: Location of High-Potential Shale Gas Plays in Indonesia
• Figure I-9: Location of the Shale Gas Play Areas in the North Sumatra Basin
• Figure I-10: Stratigraphic Column of the Prospective Shale Section in the

North Sumatra Basin
• Figure I-11: Location of the Shale Gas and CBM Plays in Central Sumatra
• Figure I-12: Stratigraphic Column of the Prospective Shale and Coal Sections
in Central Sumatra
• Figure I-13: Location of the Shale Gas and CBM Plays in South Sumatra
in South Sumatra
• Figure I-15: Location of the Shale Gas and CBM Plays in West Java
• Figure I-16: Stratigraphic Column of the Prospective Shale and Coal

Sections in West Java
• Figure I-17: Location of Shale Gas Plays in East Java
• Figure I-18: Stratigraphic Column of the Prospective Shale Sections in

East Java
• Figure I-19: Location of the Shale Gas and CBM Plays in the Asem Asem
Basin in Southeast Kalimantan
in the Asem Asem Basin
v

• Figure I-21: Location of the Shale Gas and CBM Plays in the Barito Basin
in South Kalimantan
in the Barito Basin
• Figure I-23: Location of the Shale Gas and CBM Plays in the Kutei Basin
in East Kalimantan
in the Kutei Basin
• Figure I-25: Location of the Shale Gas and CBM Plays in the Greater
Tarakan Basin in Northwest Kalimantan
in the Greater Tarakan Basin in Northwest Kalimantan
• Figure I-27: Location of the Shale Gas Plays in Papua
• Figure I-28: Stratigraphic Column of the Prospective Shale Sections in

West Papua
Phase II: Production Potential of Indonesia’s Unconventional Gas—

Regulatory Framework, Aboveground Risks, Activity, Costs, and Production
Capacity
List of Figures
• Figure II-1: Transforming GIP to Probable Net Recoverable Resources
• Figure II-2: Indonesia’s Unconventional Gas Long-Run Supply Curve:

Unrisked Potential Resource
• Figure II-3: Indonesia’s Unconventional Gas Long-Run Supply Curve: Risked

Recoverable
• Figure II-4: Indonesia’s Unconventional Gas Long-Run Supply Curve: Risked

Recoverable Productive Capacity
• Figure II-5: Cost of Supply and Risked Productive Capacity by Region and
Substantial Play
• Figure II-6: Indonesia’s Unconventional Gas: Daily Rate Productive Capacities

by Scenario
• Figure II-7: Short-Run Supply Curve for 2035 by Scenario and Productivity
• Figure II-8: Comparison of Daily Rate Productive Capacities for the High,
Medium, Low, and Potential Resource Case Scenarios
vi
• Figure II-9: Sumatra: Unrisked and Risked Cost of Supply of Shale Gas
and CBM
• Figure II-10: Sumatra: Shale Gas and CBM Daily Rate Productive Capacity
Outlook
• Figure II-11: Kalimantan: Unrisked and Risked Cost of Supply of Shale

Gas and CBM
• Figure II-12: Kalimantan: Shale Gas and CBM Daily Rate Productive Capacity
Outlook
• Figure II-13: Java: Unrisked and Risked Cost of Supply of Shale Gas and
CBM
• Figure II-14: Java: Shale Gas and CBM Daily Rate Productive Capacity
Outlook
• Figure II-15: Papua: Unrisked and Risked Cost of Supply of Shale Gas
and CBM
• Figure II-16: Papua: Shale Gas and CBM Daily Rate Productive Capacity
Outlook
• Figure II-17: Indonesia: Low Case Daily Rate Productive Capacity by Region
• Figure II-18: Indonesia: Low Case Daily Rate Productive Capacity by Shale
Gas and CBM
• Figure II-19: Indonesia: Low Case Activity Outlook for Wells Drilled, Well
Capex, and Rig Count
List of Tables
• Table II-1: Sumatra: Low Case Resources, Production Potential and Timing
of Shale Gas and CBM Plays
• Table II-2: Kalimantan: Low Case Resources, Production Potential and

Timing of Shale Gas and CBM Plays
• Table II-3: Java: Low Case Resources, Production Potential and Timing of
Shale Gas and CBM Plays
• Table II-4: Papua: Low Case Resources, Production Potential and Timing
of Shale Gas and CBM Plays
Phase III: The Future of Unconventional Gas in the Indonesian Domestic

and Export Market Context
List of Figures
• Figure III-I: Indonesia: GDP Growth Outlook
vii

• Figure III-2: Indonesia: Nominal Share of GDP at Factory Cost
• Figure III-3: Indonesia: Population by Demographics
• Figure III-4: Regional Share of Population, 2010
• Figure III-5: Regional Share of GDP, 2010
• Figure III-6: Urea Production Capacity
• Figure III-7: Indonesia: Energy Mix Outlook for 2025
• Figure III-8: Indonesia: Gas Consumption per Capita Against Percent Export
• Figure III-9: Indonesia: Gas Demand Outlook by Sector
• Figure III-10: Indonesia: Gas Demand Outlook by Region
• Figure III-11: Java: Gas Demand Outlook by Sector
• Figure III-12: Sumatra: Gas Demand Outlook by Sector
• Figure III-13: Kalimantan: Gas Demand Outlook by Sector
• Figure III-14: Papua, Sulawesi, and Others: Gas Demand Outlook by Sector
• Figure III-15: Indonesian Supply-Demand Outlook Without Unconventionals
• Figure III-16: Gas Balance, 2011–35: Total Indonesia
• Figure III-17: Gas Balance, 2011–35: Java
• Figure III-18: Gas Balance, 2011–35: Sumatra
• Figure III-19: LNG Liquefaction Capacity: Large Feedgas Needs, but How
Much for Exports?
• Figure III-20: Gas Balance, 2011–35: Kalimantan
• Figure III-21: Regional Supply/Demand Balance, 2011
• Figure III-24: Major Pipelines Capacity Requirements, 2015
• Figure III-25: Major Pipelines Capacity Requirements, 2020
• Figure III-26: Supply Cost Stacks into West Java (Jakarta)
• Figure III-27: Supply Cost Stacks into Central Java (Semarang)
• Figure III-28: Supply Cost Stacks into North Sumatra (Medan)
viii
• Figure III-29: Citygate Prices Will Need to Adjust to LNG Netback Levels
to Compete Against Exports
• Figure III-30: LNG Demand Expectation in Pacific Markets Far Surpasses

Firm Contracted Supply
• Figure III-31: Continued Demand Growth in Pacific Markets
• Figure III-32: Competition from Uncontracted Pacific Supply and Flexible

Middle East Demand Will Be Strong Through 2018
• Figure III-33: Indonesian LNG from Conventional and Shale Production Is

Well Placed to Compete Against Other Supply Sources
• Figure III-34: Bontang LNG Will Be Best Placed to Utilize Unconventional

Gas for Export Opportunities
List of Tables
• Table III-1: Key National Pipeline Projects
• Table III-2: Indonesia’s LNG Regasification Terminal Projects
Appendix A: Production Potential: Methodology
List of Figures
• Figure A-1: Phase II: Operational and Production Framework Play-Level Risks
• Figure A-2: Operational and Production Framework—Assessing Resource

Risk and Transforming It into Plateau Probable Production
• Figure A-3: Phase II: Operational and Production Framework—Assessing

Play Development Risk and Transforming It into Time to First Production
List of Tables
• Table A-1: For Risked Resource Estimate: Percentage of Net Recoverable
Resource Assumed for Category of Play
Appendix B: Well Costs for Indonesian Unconventional Gas Development
List of Figures
• Figure B-1: Third Quarter 2011 Indonesian Well Costs Difference of Type Well
• Figure B-2: Third Quarter 2011 Indonesian Well Costs of Type Well
• Figure B-3: Correlation Between Well Cost and Well Depth in Indonesia
• Figure B-4: Correlation Between Well Cost and Well Pressure in Indonesia
ix
• Figure B-5: Indonesia: Cost Difference Relative to Marcellus Shale Gas—
Shallow
• Figure B-6: Indonesia: Cost Difference Relative to San Juan—CBM
• Figure B-7: Indonesia: Cost Difference Relative to Arkoma CBM—

Quad-Lateral Horizontal
List of Tables
• Table B-1: Costs of Unconventional Gas Wells by Region and Type
• Table B-2: Cost Breakdowns of Unconventional Gas Wells in North America
Appendix C: Supplementary Tables
List of Tables
• Table C-1: Play Risk Characteristics and Potential by Region—Sumatra:
Shale Gas
• Table C-2: Play Risk Characteristics and Potential by Region—Sumatra: CBM
• Table C-3: Play Risk Characteristics and Potential by Region—Kalimantan:

Shale Gas
• Table C-4: Play Risk Characteristics and Potential by Region—Kalimantan:

CBM
• Table C-5: Play Risk Characteristics and Potential by Region—Java: Shale

Gas
• Table C-6: Play Risk Characteristics and Potential by Region—Java: CBM
• Table C-7: Play Risk Characteristics and Potential by Region—Papua:

Shale Gas
• Table C-8: Play Risk Characteristics and Potential by Region—Papua: CBM

UNCONVENTIONAL FRONTIER—INDONESIA:
Executive Summary
The technological revolution in unconventional gas production has already transformed the
North American gas industry and sent ripples through the global industry. It could also
transform certain other national or regional markets where there is significant unconventional
gas potential. Indonesia falls squarely into this category, owing not only to its considerable
unconventional potential but also to its existing natural gas infrastructure and strong position
as a liquefied natural gas (LNG) exporter. Could unconventional gas allow Indonesia—whose
gas exports are currently assumed to be in long-term decline—to extend and enhance its
export position while also meeting growing domestic demand?
The answer to this question is yes, according to the IHS CERA Multiclient Study
Unconventional Frontier—Indonesia: Prospects for Shale Gas and CBM. Our analysis
concludes that Indonesia’s significant unconventional gas potential could allow it to retain
its position as a major LNG exporter for decades to come. We estimate total gas-in-place
(GIP) at 4,980 trillion cubic feet (Tcf) (140 trillion cubic meters [Tcm]) for shale gas and
1,090 Tcf (30 Tcm) for coalbed methane (CBM).
This study explores the factors that will determine the extent to which Indonesia’s
unconventional gas potential will be realized, while also drawing out the implications for
Indonesia’s energy market and position as an LNG exporter. Of course, geology remains
a very significant area of uncertainty: only a fraction of GIP resources will ultimately be
recovered, and recoverability factors and productivity will be clarified only gradually, on
a play-by-play basis, as wells are drilled into shales and coalbed formations. Government
policy and regulation will also have a major impact.
The study is presented in three sections.
• Phase I assesses the geological characteristics of 31 shale gas plays and 14 CBM plays
in Indonesia on the basis of IHS proprietary databases as well as scientific literature.
This analysis provides a systematic framework for categorizing the potential of these
plays, and it forms the basis for an estimate of the total GIP in the basins investigated.
• Phase II builds on this geological analysis, using proprietary tools and databases
to estimate development costs, probable net recoverable resources, and production
potential for the unconventional plays under assessment. We also consider the regulatory
environment and other aboveground factors and discuss the activity currently under
way in these basins in the context of play-specific development challenges.
• Phase III builds on the analysis of development costs and risked production profiles
to determine how unconventional gas could fit into the Indonesia’s overall supply/
demand balance as well as the gas balances of key Indonesian regions, while taking
into account issues of cost competition, infrastructure, and the outlook for the Asian
LNG market.
Executive Summary ES-1

© 2012 IHS

Unconventional Frontier—Indonesia: Prospects for Shale Gas and CBM is part of a series
of essential, industry-leading analyses of unconventional gas development potential around
the world, building on IHS CERA’s earlier work on North America, Europe, and China.*
Headline Conclusions
The key elements and conclusions of the report are provided in this Executive Summary.
The headline conclusions of our analysis are as follows:
• Large resource potential. The geological potential for shale gas and CBM in Indonesia
is vast, with a potential resource of some 1,542 Tcf (43.7 Tcm) and risked recoverable
resources estimated to be in the range of 110 to 338 Tcf (3.1 to 9.6 Tcm).
• A slow start is likely, and a boom is not guaranteed, but some level of development
is probable. Indonesia’s large potential does not ensure a boom in unconventional gas
production similar to that in North America. Unit supply costs are assessed to be higher,
particularly for CBM, and productivity in some share of even the highest-potential
plays is likely to be disappointing. Significant challenges exist regarding operations,
regulation, and the investment climate. But with 45 prospective plays, some are likely
to succeed, and aboveground challenges will be surmountable over time. IHS CERA’s
analysis suggests that in a Low Case scenario—which we consider to be a reasonable
planning case—unconventional gas production would begin in 2020 and build steadily
to a peak production level of 11.4 billion cubic feet (Bcf) per day (118 billion cubic
meters [Bcm] per year) by 2036. This is a significant volume; indeed, it is higher than
the country’s current level of total gas production—a level which makes Indonesia
today the world’s eighth-largest gas producer.
• Shale gas (but not CBM) is competitive on cost. Although most current licensing
and drilling activity is focused on CBM, Indonesia’s shale gas resources will likely be
cheaper to produce, based on IHS CERA’s assessment. Breakeven wellhead gas prices
for the most prospective Indonesian shale plays are estimated to be in a range of $4
to $6 per thousand cubic feet [Mcf]; this would make exports of Indonesian shale gas
as LNG highly competitive and potentially make some shale plays profitable even if
sold at domestic market prices. CBM, with estimated breakeven wellhead prices in a
range of $11 to $12 per Mcf, is less commercially attractive but would be competitive
with imported LNG.
• Unconventionals could revitalize Indonesian LNG exports starting in the mid-2020s.

Absent new unconventional gas supply, the combination of growing domestic demand
and stagnant (and eventually declining) conventional gas production would result in
steadily declining availability of Indonesian LNG for export markets. However, assuming
that unconventional gas potential materializes as expected in the IHS CERA planning
case, Indonesia will by the mid-2020s be able to meet domestic requirements in full
*See the IHS CERA Multiclient Studies Rising to the Challenge: Turning North America’s Unconventional Gas
Supply Potential into Reality; Fueling North America’s Energy Future; Breaking with Convention: Prospects for
European Unconventional Gas; and other studies in the Unconventional Frontier series covering China and Eastern
Europe.
ES-2 Executive Summary

© 2012 IHS
while also making full use of LNG liquefaction capacity for exports; and meanwhile,
the country’s existing liquefaction infrastructure will give Indonesian shale gas a major
cost advantage that will support its competitiveness in LNG export markets.
• Supporting early exploration activity should be a policy imperative. Indonesia’s

unique geography coupled with the wide uncertainty in the scale and distribution of its
unconventional resources poses a challenge to optimal investment planning for the new
pipeline infrastructure that will be required to link existing and new gas production to
markets. Reducing resource uncertainty through early exploration drilling—particularly
for shale gas—would make it easier to develop new infrastructure in an optimal way.
Phase I: Geological Framework

The goal of the assessment undertaken in Phase I of this study was to establish a consistent
geological framework to assess the subsurface resource potential for the shale gas and CBM
plays in the region. The analysis is based on well-documented and understood source rock
analysis as well as mapping of play areas based on available well data and other published
data. The analysis included an evaluation of the richness (in terms of organic matter) and
maturity of shales or coal beds as well as further analyses of gas content and the matrix
characteristics of specific prospective shales and coal beds.
The IHS CERA analysis estimates Indonesian unconventional GIP at 4,980 Tcf (140 Tcm) of
shale gas plus 1,090 Tcf (30 Tcm) of CBM. This analysis examined a total of 31 shale gas
plays and 14 CBM plays of different geological ages located on Sumatra, Java, Kalimantan,
and West Papua.
It should be noted that although the IHS CERA assessment provides a deterministic estimate
of the most likely scale of the resource, the result is subject to considerable uncertainty.
Moreover, these volumes refer to total estimated GIP rather than commercially recoverable
reserves. Recoverable quantities will be much smaller than in-place resources, and the
productivity of each play remains to be proved through drilling and well testing.
The major geological risk for shale gas plays in Indonesia is their young geological age and,
associated with this, their relatively low maturity for gas generation. Our analysis of the key
geological characteristics and risks of shale gas and CBM plays has allowed ranking of the
more prolific areas. Of the 31 shale gas plays, 6 are considered to have both low risk and
high potential; these 6 plays contain 43% of the total GIP resources.
Three shale gas plays on Sumatra—the Bampo Shale, the Brown Shale, and the Talang Akar
Shale—are of high potential and contain a quarter of the country’s total in-place resources.
The Barito Tanjung Shale on Kalimantan and the Aifam Shale on West Papua show similarly
high potential, with the latter exhibiting the highest gas richness. One CBM play in South
Sumatra is considered to have high potential.

© 2012 IHS

Phase II: Costs, Production Profiles, and Aboveground Issues

Phase II of the study estimated the production potential of Indonesian unconventional gas
on the basis of IHS CERA’s methodology for risking the geological potential (as analyzed
in Phase I) as well as an analysis of the impact of aboveground constraints on development.
The analysis considered risks initially at the macro and industry levels and then drilled
down into basin-level and play-level risks. Our analysis uses data from US analogues for
assessing both production and costs. Unit costs for each play were assessed by taking into
account probable resources along with the development economics of each play, factoring
in well-grounded assumptions about productive capacity, discount rates, production-sharing
agreement terms, and capital and operational expenditures.
These results are based on a robust but ultimately theoretical set of models and assumptions.
The scale and timing of unconventional gas development in Indonesia are of course subject
to high levels of uncertainty, and in reality any number of technical or aboveground factors
will intrude—possibly to improve the outlook for unconventional gas production, but more
likely to constrain it. One key technical risk will be play productivity, and in particular the
question of whether the relatively young shales in Indonesia will respond well to fracturing.
Key aboveground factors relate to whether the Indonesian state and the gas industry as a
whole will work toward creating a positive investment climate by developing infrastructure,
bolstering service-sector capability and scale, and establishing a streamlined regulatory
environment.
IHS CERA’s estimates of probable net recoverable resources of unconventional gas in

Indonesia range from 110 Tcf (3.1 Tcm) in a Low Case to a 338 Tcf (9.6 Tcm) in a High
Case. Ultimately, using reasonable assumptions about geology and the management of
aboveground factors, we consider the Low Case scenario to be the most probable and the
most suitable for use as a planning case.
In this planning case, production is assessed as starting in 2020 and then building to a
peak of 11.4 Bcf per day (118 Bcm per year) by 2036, with shale gas making up 90%
of this volume in that year. The markedly lower cost of Indonesian shale gas plays (with
breakeven wellhead gas prices typically in the range of $4 to $6 per Mcf) compared with
those of CBM (with a typical range of $11 to $12 per Mcf) is at odds with current trends
in licensing and exploration activity. This highlights a strong incentive for policymakers and
industry players to accelerate the testing of shale gas plays.
Phase III: the Future of Unconventional Gas in the Indonesian

Market Context
Unconventional gas could have a transformational impact on Indonesia’s gas industry. On
present trends, it is gradually becoming necessary for Indonesia to reduce LNG exports
significantly to meet its domestic needs. Unconventional gas production could solve this
problem in the long term, enabling Indonesia to meet growing domestic demand while also
increasing its exports of LNG.
ES-4 Executive Summary

© 2012 IHS
Domestic gas demand is expected to grow steadily at an annual rate of just below 3%,
pushing consumption up to about 77 Bcm by 2030 from today’s level of 44 Bcm. Our
planning case for the next decade—before unconventional gas production emerges—sees
increasing volumes of LNG being diverted to the domestic market; since such diversions
are limited by contractual export commitments, some LNG imports will also be required.
Adding unconventional gas production (using the planning case) changes this picture rapidly
in the decade after 2020, ending the requirement to divert LNG cargoes by about 2025
(assuming some construction of new interisland pipeline infrastructure) and generating as
much as 35 Bcm per year of surplus gas potentially available for export by 2030.
The picture for delivered costs looks rather positive for shale gas (although not for CBM,
which appears to be competitive only relative to imported LNG, which in any case would
disappear by 2025 at the latest in this outlook). Shale gas looks to be competitive with new
conventional, offshore supply in the domestic market and could almost be sold profitably
in the markets of Java and Sumatra even at today’s domestic prices (which will rise as a
matter of policy).
In terms of export markets, initial volumes of shale gas—which would have the advantage
of access to existing spare liquefaction capacity—would be extremely competitive and thus
highly profitable in the Asian LNG market. Once construction of new liquefaction facilities
became necessary for the expansion of exports, Indonesian shale gas produced for export
as LNG would be toward the higher end of the cost curve for regional LNG supply, but
still well within the range of expected prices for Asian LNG in IHS CERA’s planning case.

© 2012 IHS
An IHS CERA Multiclient Study Unconventional Frontier—Indonesia
Phase I: Geological Framework, Resource Potential,

and Subsurface Risk
How Big Are the Unconventional Plays and Where Are They?
Introduction
In Phase I of this IHS CERA Multiclient Study in the Unconventional Frontier series, a
geological analysis of the distribution and resource potential of unconventional shale gas
and coalbed methane (CBM) plays in Indonesia has been undertaken. Shale gas differs from
conventional petroleum systems in that gas is produced not from sandstone or carbonate
reservoirs—which are separate rock types (lithologies) from the shale source rock—but
rather directly from the source rock. Similarly, in CBM plays the coal beds act as both
source rock and reservoir.
During the source rock maturation process, gas is released from transformed kerogen contained
in shale and coal, at which point part of the gas can migrate into conventional reservoirs
or can escape to the surface. Another part of the gas produced is adsorbed to the shale and
coal surface and stored in the microporosity of the rock matrix. Permeability in the matrix
is extremely low (fractions of a millidarcy), and as a result, production from unconventional
gas requires the existence of natural fractures as well as hydraulically induced fractures to
release the gas into the borehole at potentially commercial rates.
Our analysis of shale and CBM plays is partly based on well-documented and understood
conventional source rock analysis, including an evaluation of kerogen richness and maturity
of the shale or coal. Estimating resources requires additional analysis, in particular with
regard to gas content and the matrix characteristics of the shale or coal formation. The
methodology is described in more detail below.
For the purposes of this report, a play is defined as the prospective volume of rock that
encompasses the lateral and vertical extent of shale rock or coal beds with the potential
characteristics in rock properties, thickness, and gas content to allow the play to generate
and produce gas. After mapping and analyzing prospective shale and coal intervals, final
play areas were defined and selected. Gas-in-place (GIP) resources were then calculated
for each play.
Play Assessment and Resources Estimates Methodology: How

Much Gas-in-Place in Indonesia?
The goal of the Phase I assessment for the Unconventional Frontier study on Indonesia was
to establish a consistent geological framework to assess the subsurface resource potential
for the range of unconventional gas plays. This assessment was used as input for Phase
II (which estimates potential production capacity for unconventional gas in Indonesia) and
Phase III (a commercial and market analysis). By applying a consistent methodology across
Chapter I I-1

Unconventional Frontier—Indonesia An IHS CERA Multiclient Study
plays in various countries and divergent geological settings, our approach allows for broad
comparisons and provides a consistent framework for the analysis of production capacity
and commercial factors in phases II and III.
In this screening study, we have assessed shale gas and CBM plays in some detail; we
focused our geological descriptions and interpretations on understanding the potential for
unconventional gas production as well as on determining the subsurface risks at a play level.
The maps provided in this study are of a general character and are intended to illustrate
the general distribution of parameters such as maturity and present-day burial depth. This
evaluation was not designed to support detailed exploration of individual plays or identify
specific “sweet spots” of future high potential.
The play maps show the depth to the top of the specific shale or coal interval and the
thickness (isopach). Geological information and well-top data have been drawn from various
sources, including scientific publications and in-house reports as well as the IHS IRIS21
Basin, Exploration, Production, and Coal databases. The relevant data and interpretations
are available as separate files on the Multiclient Study website in the form of ESRI ArcGIS
shapefiles, data tables, and play description documents, including bibliographic references.*
Specifically we have included play summary spreadsheets for both the shale gas and CBM
plays investigated, which summarize the data coverage and quality by play, the typical
reservoir parameters, and the resource analysis for each play.
Only part of any shale or coal-bearing formation displays sufficiently good kerogen quality and
sufficient gas content to be considered prospective for potential commercial gas production.
For this reason a net pay zone thickness was estimated for GIP calculations.
Because measured gas content data is not available, it was estimated on the basis of maturity
as well as kerogen quality in terms of total organic content (TOC) and Rock-Eval data
parameters (for shale) or data from laboratory analysis for coal, so-called proximate data.
Estimates of the amount of expelled and retained gas were derived using assumptions about
the likely transformation of organic material into hydrocarbons during the burial history of
the rock unit. Part of the gas is expelled, but the retained volumes of gas are adsorbed to
the shale or coal matrix or are present as “free” gas in the matrix porosity (for shale) or
the natural fracture or cleat system (for coal beds).
For shales, the storage capacity of the adsorbed gas was estimated from transformation of
organic matter into hydrocarbons through maturity, taking into account the type of kerogen
and gas composition. We developed a consistent set of algorithms to calculate gas content
largely based on work developed by Jarvie in his analysis of the Barnett Shale in 2007.**
The amount of “free” gas available in the micropores of the shale matrix is more difficult
to estimate without direct laboratory measurements on cores. Our calculations are based on
*See the data and interpretations on the Unconventional Frontier—Indonesia website under Additional Research and
Geological Framework Project Files.
**Javie, D.M. et al., “Unconventional Shale-Gas Systems: The Mississippian Barnett Shale of North-Central Texas as
One Model for Thermogenic Shale-Gas Assessment,” American Association of Petroleum Geologists bulletin v. 91,
no. 4.
I-2 Chapter I
estimates of the effective matrix porosity and (micro)porosity created by the transformation
of organic matter into hydrocarbons (between 2% and 5% on average), the pressure, and
the gas volume factor at depth of the shale zone of interest.
For coal, the gas content was taken from direct measurements in the coals, which are often
obtained as part of the exploration process in coal mining. These measurements were used to
derive in-situ gas content by taking into account the pressure and temperature at the depth
of the coal bed. Where no measurements were available, gas content was instead calculated
based on analysis of coal data, which includes ash content, fixed carbon, moisture, and volatile
matter. Kim (1977) developed a method based on coal rank and coalbed pressure to estimate
gas content.* Various authors have improved these calculations in more recent publications,
and a “modified Kim method” has been used in cases where no direct measurements were
available.
We have defined play areas by assessing the extent of the potential shale and coal intervals
that meet four key criteria:
• A prospective area where the level of organic matter is high enough to have
generated gas. In general a TOC value of 2% or more for shale is applied, but because
of the limited geochemical data available on kerogen content, lower values have been
taken into consideration.
• An adequate pay thickness (using a minimum of 25 meters [m] for shale and 10
m for coal).
• A level of maturity sufficient to support the generation of gas. In general, shale

needs to have reached the wet gas maturity window at a vitrinite reflectance value of
0.9%, but because some of the shales in Indonesia are quite immature and in the oil
window (vitrinite reflectance 0.7 to 0.9%), lower maturity levels have been considered.
• An adequate depth for the top of the prospective section (using a minimum of
1,000 m for shale and a range of 500 m to 2,000 m for coal).
Having defined play areas, GIP resources were calculated for each area, taking into account
the above four key criteria.
GIP Estimates by Play: The Bottom Line

A total of 31 shale gas plays and 14 CBM plays were analyzed on Sumatra, Java, East
Kalimantan, and West Papua (see Figure I-1).
*Kim, A. “Estimating Methane Content of Bituminous Coal Beds from Adsorption Data,” Report of Investigations
8245, US Department of the Interior, Bureau of Mines, 1977.
Chapter I I-3


A total of 4,984 trillion cubic feet (Tcf) (141 trillion cubic meters [Tcm]) GIP resources is
present in shale gas plays and 1,093 Tcf (30.2 Tcm) of CBM resources. Estimates of the
GIP calculated for each play along with the input parameters and data from the risk analysis
described below are included on the Multiclient Study website.*
It is important to emphasize that these figures refer to total estimated GIP and not to
commercially recoverable reserves. The volumes of gas actually produced will be much lower
than volumes in place because of a range of reservoir factors, such as low permeability,
limited storage capacity of the matrix porosity, and gas adsorption to shale.
Lateral and vertical variations in reservoir quality will also affect recovery, as we have
seen in studies on analogous plays in North America, which suggest that only 10% to 20%
of a total shale gas resource play will be recoverable over time. There is also mounting
evidence that individual plays have “sweet spots” where productivity and commerciality are
greatly enhanced. The main objective of the geological framework was to establish potential
prospective areas and gross gas resource estimates, and it was not possible to determine
*See the data and interpretations under the Additional Research page on the Unconventional Frontier—Indonesia
website.
I-4 Chapter I
these sweet spots in this study. In Phase I we made estimates for GIP only. In the Phase II
analysis these results were used to estimate potential reserves as well as potential production
capacity for each shale gas and CBM play.
Widely varying figures have been estimated for unconventional gas potential in Indonesia
and cited in both the press and the geological literature as potential resources. Of these, the
study undertaken by Rogner for the Institute for Integrated Energy Systems at the University
of Victoria (Canada) is widely quoted and indicates a total GIP of 8 gigaton of oil equivalent
(equal to 315 Tcf or 8.9 Tcm) for shale gas in an area called the “PAS—Other Pacific
Asia” that includes Indonesia, Thailand, and Malaysia.* These figures were published in
1997, and there is no information available concerning which specific plays or geological
intervals were included.
For this screening study, the resource estimates have been based on average values for pay
zone thickness and gas content for each play based on available data and interpretations.
In reality, these parameters vary throughout individual shale and coal deposits. It should be
noted that although the IHS CERA resource estimates provide a “best case” deterministic
estimate, there is obviously some uncertainty. For this screening study, we believe that this
approach provides a good first-pass estimate of GIP, particularly since the recoverable resource
is likely to be only a fraction of the total. It is only through detailed analysis carried out
in connection with future drilling that more detailed and reliable resource estimates will
become available.
Figure I-2 shows the distribution of GIP resources for shale gas in the regions in Indonesia
and Figure I-3 the distribution for CBM.
Sumatra holds 38% of the shale gas resources and half of the CBM resources. A quarter of
the shale gas resources and 45% of the CBM resources are located in southeast Kalimantan.
Figure I-4 shows the distribution of shale gas resources by geological age. Oligocene and
Miocene each hold about a third of the resources, the Pre-Tertiary (Permian and Jurassic)
only 10%. This shows that most of the shales are geologically young, which is of importance
for evaluating the probability of mature gas generation and the potential for well stimulation
by hydraulic fracturing, which depends on the degree of brittleness of rocks.
Risking and Ranking: Understanding the critical elements of

play assessment
The shale gas and CBM plays have been analyzed and risked on a relative scale on the basis
of five subsurface parameters in order to group them into three categories: high potential,
medium potential, and low potential.
For shale gas plays, the following five characteristics were considered for risk analysis:
*Rogner, H.H. “An Assessment of World Hydrocarbon Resources,” Annual Review Energy Environment. 22:217–52,
1977.
Chapter I I-5


I-6 Chapter I

• Depth. A minimum depth of 1,000 m is required for shale plays to be considered

prospective, but greater depths are generally required to optimize production potential.
However, very significant depths tend to constrain drilling operations because of the
effect of high temperatures and pressures on downhole equipment, and cost also becomes
a key factor. For these reasons, the optimum depth is considered to be between 2,000
m and 4,000 m. It is also desirable to have slight overpressure, preferably around
0.55 pounds per square inch per foot (3.8 kilopascal), in order to improve hydraulic
fracturing operations and enhance ultimate well productivity.
• Pay zone thickness. A minimum thickness of 25 m with good kerogen quality is

required, but a thicker pay section is better. Experience from shale gas operations in the
United States indicates that pay zone thickness in a range of 125 m to 150 m delivers
the best productivity for horizontal wells after multistage hydraulic fracturing. Thicker
intervals could be developed by vertical or deviated wells. Pay zone is considered to
be that part of the shale section that contains organic matter of sufficient quality to
have generated adequate gas content, in general where the TOC is 2% or higher.
• Shale maturity. To produce sufficient gas, the shales must have reached the wet-to-
dry gas window, which corresponds to vitrinite reflectance values between 1.0% and
1.5%. However, a majority of the shales in Indonesia are relatively immature with
vitrinite reflectance values between 0.7 and 1.0%, but which could have generated
gas. These low maturity shales have been taken into consideration in the evaluation
but are considered high risk.
Chapter I I-7

• Kerogen quality. A Type II or Type II-III kerogen is required, with TOC values of
at least 2%.
• Gas content. For gas content, which is linked to kerogen quality and shale maturity,
higher values mean greater potential, with values generally higher than 100 standard
cubic feet (scf) per ton of shale required. Any contamination by carbon dioxide (CO2),
nitrogen, or hydrogen sulphate has a negative effect on play economics.
For CBM plays, the following parameters were considered to guide the subsurface risk
analysis:
• Depth. Optimum CBM production comes from coal seams at depths between 500 m
and 1,500 m; 2,000 m is considered the maximum depth. At greater depths, the cleat
(fracture) system tends to collapse and reduce productive capacity.
• Pay zone thickness. Although individual coal beds should ideally have a minimum
thickness of 1 m, a thick sequence of coal beds measuring at least 10 m in cumulative
thickness is considered minimum, with the optimum thickness of more than 25 m.
The seams should be continuous and located in large and relatively undisturbed fault
blocks. Intercalations of mudstone or siltstone are common, but they should be thin.
• Maturity. The coal should be in the gas window, but with vitrinite reflectance lower
than 1.5%. In cases where coal is overly anthracitic, the cleat system tends to close,
and desorption of gas becomes less effective.
• Coal rank. The optimum coal for gas production should be medium- to high-volatile
bituminous coal with a low moisture content, which offers the best capacity for gas
storage.
• Gas content. Gas content, which is linked to maturity and coal rank, should ideally
be higher than 250 scf per ton of coal. Contamination by CO2, nitrogen, or hydrogen
sulphate is acceptable, but only at low levels.
The above parameters were assessed for each shale gas and CBM play covered in this
analysis. Each play area was given a relative rating for all of these key parameters, ranging
from one (high risk and/or low probability) to five (low risk and/or high probability). Some
parameters such as depth for which data are fairly extensive were more reliably risked; for
other parameters (such as kerogen quality) the risking process was more subjective. When
limited information was available, for example in cases where no geochemical analysis
was available on kerogen quality, the default judgment was to assume higher risk at this
stage. Further investment in wells and seismic in the high-risk areas may well reduce the
subsurface risk profile in the future.
The results of the risk analysis and ranking are provided in data tables on the Multiclient
Study website.*
website.
I-8 Chapter I
Results of Risk analysis: Not all plays have equal quality

The shale gas and CBM plays were risked on the five key parameters mentioned above.
The following is a summary of the main risk characteristics; a more detailed analysis per
play is provided in the regional play descriptions below.
The geology of Indonesia is characterized by geologically young basin formation, and most
of the shale and sections of interest are of Tertiary age. The young age has implications
for the unconventionals potential in the region. Because maturity of many sections has not
reached the gas generation window, gas content is low even for shales with high kerogen
content; and risk for most of the shale plays is elevated compared with other countries with
unconventionals potential.
Figure I-5 shows the average risk for shale gas plays by region and Figure I-6 by geological
age for the five key parameters: depth, pay thickness, maturity, kerogen quality, and gas
content.
Shales on Java are immature, which results in a high risk for low gas content. Risk of
immature shales, poor kerogen quality, and low gas content are also in the other regions
but to a slightly lesser degree. Depth and play thickness have relative low risk, in general.
Permian and Jurassic shale gas plays have low risk. The younger Tertiary plays have more
elevated risk because of lower maturity, poorer kerogen quality, and lower gas content. Pay
thickness has a low risk overall, apart from the Jurassic section.

Chapter I I-9


The main risk for CBM plays is the relatively thin coal pay zones and the maturity of the
coals (see Figure I-7). Gas content has an elevated risk in the Tarakan Basin because of the
low maturity of the coal. Thin coal pay zones are the major risk on Java.
Shale and CBM plays have been ranked from high potential–low risk to low potential–high
risk based on the analysis of the risk parameters described above. The high-potential shale
gas plays are the Bampo Shale in North Sumatra, the Talang Akar Shale in South Sumatra,
the Tanjung Shale in the Barito Basin, the Sembakung play in the Tarakan Basin, and the
Aifam and Lower Kembelangan shales in Papua (see Figure I-8). The high-potential shale
gas plays contain a total of 1,523 Tcf of GIP resources, which is 31% of the total GIP.
The medium-potential shale gas plays contain 35% of the total GIP resources. Of the 14
CBM plays, 10 are ranked as high potential and include 77% of all GIP resources (252
Tcf or 6.3 Tcm).
SUMMARY OF REGIONAL PLAY ASSESSMENTS
Understanding the Main Areas of Potential Unconventional Gas Production

In the following section we summarize each of the plays evaluated in this study and comment
on its potential and the associated subsurface risk.*
*Further details are in data tables, GIS shape files, and more comprehensive play descriptions, available on the
Multiclient Study website.
I-10 Chapter I

Chapter I I-11

North Sumatra
Three shale gas plays have been mapped in the North Sumatra Basin (see Figure I-9): the
Upper Oligocene to Lower Miocene Bampo, the Lower Miocene Peutu, and the Middle
Miocene Lower Baong Shale (see Figure I-10). The Bampo Shale is the deepest section and
offers the best potential in the area; the other two plays are relatively shallow and immature.
The three shale plays are stacked on each other, which enlarges prospectivity. Total GIP
resources for the area are estimated at approximately 340 Tcf (9.6 Tcm).
• The Bampo Shale gas play is considered high potential. The marine black shales
are located at depths between 1,400 m and 3,000 m. The prospective shale section
is 80 m thick on average and contains good-quality kerogen of Type III with minor
Type II and TOC values between 2.3% and 9%. Because of deep burial to a maximum
depth of 3,000 m, maturity has reached the wet-to-dry gas window (maximum vitrinite
reflectance 1.6%). Gas content is estimated at 80 scf per ton of shale on average, but
maximum values can reach 170 scf per ton in zones of better kerogen quality. This play
has low risk and high potential; GIP resources are estimated at 178 Tcf (5.04 Tcm).
Figure I-9
Location of the Shale Gas Play Areas in the North Sumatra Basin
Lower Baong
Shale Play
Peutu
Shale Play
Bampo
Shale Play

I-12 Chapter I

• The Peutu and Lower Baong shales have mediocre potential. The shales are
relatively shallow, buried to a maximum depth of 2,600 m, and are of low maturity.
The Lowe Baong Shale has maximum TOC values of 5.1%, but the kerogen quality
of the Peutu Shale is limited to a maximum TOC of 3.4%. The low maturity implies
a low gas content of an average 40 scf per ton of shale, and both shale plays are
considered medium potential. GIP resources are estimated at 100 Tcf (2.9 Tcm) for
the Peutu and 60 Tcf (1.7 Tcm) for the Lower Baong Shale.
Central Sumatra
The Central Sumatra area is rich in shale gas and CBM plays (see Figure I-11 and Figure
I-12). Three shale gas plays, the Brown, Bangko, and Telisa shales, have been mapped. For
CBM, the Korinci Formation in the Central Sumatra Basin and the Sawahlunto Formation
in the Ombilin Basin have been mapped. The total play extends over a large area of more
than 50,000 square kilometers (sq km), and the plays are stacked on each other. The Brown
Shale is considered medium potential and the other two plays low potential. The resource
potential is estimated at a GIP of 930 Tcf (16.7 Tcm) for shale gas and 166 Tcf (4.7 Tcm)
for CBM.
Chapter I I-13


• The Brown Shale offers the highest potential in the area. The Lower Oligocene
Brown Shale Formation (Pematang Group) contains lacustrine shales of mixed Type II
and III with a high TOC content between 4 and 12%. The shale section averages 100
m in thickness. The shales are buried between 1,000 and 2,500 m, and the maturity is
low, just reaching the wet gas window with a vitrinite reflectance of 0.9%. Consequently,
the calculated gas content is low, averaging 40 scf per ton of shale, with a maximum
of only 70 scf per ton for the richer kerogen parts. The play extents over a vast area
of more than 40,000 sq km, and GIP resources are calculated at 390 Tcf (11 Tcm).
The main risk is the low maturity and gas content, in particular where the shales are
buried at shallow depth; and notwithstanding the good kerogen quality, the potential
is considered medium.
• The Bangko and Telisa shales are considered low potential. Kerogen quality of the
Lower and Middle Miocene shales is low with a maximum TOC of 3%. Combined
with a low maturity, which only reaches the oil window in the deeper parts of the
section (vitrinite reflectance between 0.5% and 0.9%), the gas content is very low,
averaging 20 scf per ton. GIP resources are calculated at 98 Tcf (2.8 Tcm) for the
Bangko and 101 Tcf (2.9 Tcm) for the Telisa shale gas play. The plays are considered
high risk and low potential.
I-14 Chapter I

• CBM plays offer significant potential. Coals of the Upper Miocene to Lower
Pliocene Korinci Formation cover a large area in Central Sumatra. The coal rank is
subbituminous with a relatively high ash and moisture content. The gas content varies
between 110 scf and 370 scf per ton of coal. Farther to the west the small Ombilin
Basin contains coals of excellent quality. The high- to medium-volatile coals have
a low ash and moisture content and average gas content of more than 300 scf per
ton. GIP resources for medium- to high-potential CBM plays in Central Sumatra are
estimated at 166 Tcf (4.7 Tcm).
South Sumatra
The South Sumatra area is characterized by important shale gas and CBM plays (see Figure
I-13). The Upper Oligocene to Lower Miocene Talang Akar Shale has the best shale gas
potential in the region, and the Upper Miocene to Lower Pliocene Muara Enim coals offer
significant CBM potential (see Figure I-14). GIP resources for South Sumatra have been
estimated at 965 Tcf (27.3 Tcm) for shale gas and 375 Tcf (10.6 Tcm) for CBM.
• The Talang Akar Formation is a high-potential shale gas play. The Upper Oligocene
to Lower Miocene Talang Akar Formation reaches depths of 3,000 m and extends over
an area of more than 80,000 sq km. The carbonaceous shale is predominantly of Type
Chapter I I-15


III and has average TOC values between 2% and 6%, but values up to 15% have been
measured in outcrops. With a maturity that has reached well into the wet gas to dry
gas window at greater depths, gas content varies between 50 scf and 110 scf per ton of
shale for the most prospective areas. However, the sections at shallower depths are of
low maturity, only reaching the oil window (vitrinite reflectance from 0.5% to 1.0%),
and gas content is in the range of 30 scf to 45 scf per ton. The Talang Akar play is
considered high potential, and GIP resources are estimated at 700 Tcf (19.8 Tcm).
• The medium-potential Gumai and Air Benakat shale plays offer significant upside
potential. The Lower Miocene Gumai and Middle Miocene Air Benakat formations
are marine shales with low- to medium-quality kerogen (average TOC 3%). Maturity
is relatively low because of burial to maximum depths between 1,500 m and 1,700 m.
Gas content is estimated at 30 scf to 50 scf per ton for the Gumai and at 45 scf to
115 scf per ton for the Air Benakat shales. Thickness of the prospective shale sections
varies considerably between 5 m and 150 m with an inferred average pay thickness
of 60 m. GIP resources are estimated at 110 Tcf (3.1 Tcm) for the Gumai and 158
Tcf (4.5 Tcm) for the Air Benakat shale gas play. Main risks are the low maturity and
low gas content, and both plays are considered medium potential.
I-16 Chapter I

• The Muara Enim coals offer significant CBM resources. The Upper Miocene to
Lower Pliocene coals in the Muara Enim Formation are predominantly subbituminous
with high ash and moisture content. The coals have a cumulative thickness between
7 m and 53 m, and gas content varies between 150 scf and 480 scf per ton of coal.
The large prospective area in South Sumatra has estimated GIP resources of 375 Tcf
(10.6 Tcm), and the play is considered high potential.
West Java
Four shale gas plays have been mapped on West Java: the Lower Oligocene Jatibarang,
the Upper Oligocene Talang Akar, the Lower Miocene Batu Raja, and the Upper Miocene
Upper Cibulakan. The Talang Akar Formation also contains a CBM play (see Figure I-15
and Figure I-16). The plays are considered low- to medium-potential because of the low
degree of maturity and the low gas content. Total GIP resources for the shale gas plays on
West Java are estimated at 440 Tcf (12.6 Tcm) and CBM resources at 55 Tcf (0.8 Tcm).
• The Oligocene Jatibarang and Talang Akar shales have the highest potential on
West Java. Shales of the Jatibarang Formation are predominantly of Type I and more
oil prone than the Talang Akar shales, which are of a mixed Type II and III. Kerogen
quality is good with average TOC of 3% and maximum values of 8% to 10%. However,
Chapter I I-17


the shales, are of low maturity with vitrinite reflectance values between 0.6 and 0.9%,
and consequently the average gas content is only 50 scf per ton of shale. Intervals of
better kerogen quality and with higher TOC values could hold gas up to 160 scf per
ton, but these zones are likely limited to small areas in the northern part of the play.
Both plays are considered medium potential. The Jatibarang play holds 160 Tcf (4.6
Tcm) and the Talang Akar play 155 Tcf (4.4 Tcm).
• The Miocene Batu Raja and Upper Cibulakan shale gas plays are considered
low potential. With a maximum TOC of 3%, the shales are of low kerogen quality.
Buried to average depths of 1,600 to 2,000 m, the low maturity shales are considered
low potential.
• The Upper Oligocene CBM play has significant resources. The subbituminous to
high-volatile bituminous coals are of good quality with a gas content of between 110
scf and 420 scf per ton of coal. However, the coals are relatively thin with an average
cumulative pay thickness of 10 m. Consequently, the coal is ranked as medium potential
and holds GIP resources of 55 Tcf (0.8 Tcm).
I-18 Chapter I

East Java
Three shale plays in the Eocene (Ngimbang Formation), the Oligocene (Kujung Formation),
and the Miocene (Tuban Formation) are present on East Java (see Figure I-17 and Figure
I-18). All three plays have poor kerogen quality with average TOC values of 2% and
maximum values of 4% to 5%. Buried to average depths of 1,400 m to 2,400 m the plays
are low maturity and have reached a maximum vitrinite reflectance of 1.0% in the deepest
parts. Consequently, average gas content is calculated at 30 scf to 40 scf per ton. The plays
are considered low potential and hold GIP resources of 280 Tcf (8 Tcm).
Southeast Kalimantan–Asem-Asem Basin

The Asem-Asem Basin forms a narrow, elongated, north-south–oriented basin along the
southeastern coast of Kalimantan and is separated from the Barito Basin to the west by
the Meratus mountain ridge (see Figure I-19). Two prospective shale horizons have been
mapped in the Eocene and Oligocene. Coals are found in the Oligocene and in the Upper
Miocene Balikpapan Formation (see Figure I-20). The shale gas plays are low potential and
hold GIP resources of 85 Tcf (2.4 Tcm). The two CBM plays are high potential, and GIP
resources are estimated at 110 Tcf (3.2 Tcm).
Chapter I I-19


• The two shale gas plays are considered low potential. Information on shale and
kerogen quality is poor, and key parameters are partly derived by comparison with
equivalent stratigraphic units in the Barito Basin. The Eocene Shale is an equivalent
of the Tanjung Formation in the Barito Basin. The shales were deposited in paralic,
shallow marine, and littoral environments. Kerogen type is primarily of Type III and
TOC values are low (maximum 3%). Although the shales are highly mature in the dry
gas window, gas content only reaches 30 scf to 60 scf per ton of shale. The Oligocene
shale has slightly better quality with maximum TOC values of 4%. These shales are an
equivalent of the Tanjung Formation in the Barito Basin. As for the Eocene shales, gas
content is low. Total GIP resources of the two plays are estimated at 85 Tcf (2.4 Tcm).
• CBM in the Asem-Asem Basin is a prolific play. Coals are developed in the Oligocene
(equivalent to the Tanjung Formation in the Barito Basin) and in the Upper Miocene
(Balikpapan Formation). The subbituminous to high-volatile bituminous Oligocene coals
are relatively thin (cumulative pay thickness of 10 m to 25 m) but of good quality.
Ash content ranges from 9% to 19% and moisture from 7% to 14%. Gas content is
estimated to vary from 220 scf per ton of coal to a maximum of 320 scf per ton. The
Balikpapan coals have similar quality to the Oligocene ones but are thicker (average
I-20 Chapter I

30 m, maximum 90 m). The two CBM plays extend along the coast from the northern
part of the basin to the southern end; they are high potential, and GIP resources are
estimated at 110 Tcf (3.2 Tcm).
South Kalimantan—Barito Basin

The Barito Basin holds one of the most prominent shale gas plays in Indonesia, the Eocene
Tanjung Shale. But CBM also is well represented by important coal intervals in the Tanjung
and Warukin formations. The basin forms an asymmetric synclinal structure dipping to the
east and bounded by the Meratus mountain ridge in the east (see Figure I-21). The deepest
part of the basin is near the mountain range in the east where the more prospective parts
of the shale gas plays are located (see Figure I-22). Shale gas holds GIP resources of 780
Tcf (22 Tcm) and CBM resources of 100 Tcf (2.9 Tcm).
• The Tanjung Shale is a high-potential gas play. Carbonaceous shales of the Eocene
Tanjung Formation yield a high kerogen quality with TOC values up to 10% (average
5%). The type is predominantly III with minor constituents of Type II. Maturity is low
in the southern part of the play area (vitrinite reflectance 0.7%) but reaches the dry
gas window in the north (vitrinite reflectance 1.5% to 2%). Gas content is high with
an average value of 105 scf per ton of shale, and higher TOC zones could yield gas
Chapter I I-21


up to 180 scf per ton. GIP resources of this high-potential play are estimated at 680
Tcf (25 Tcm). The other shale play in the area, the Oligocene Berai Shale, has poor
kerogen quality and low maturity (oil window), and its potential is considered low.
• The Tanjung CBM play offers additional high potential in the area. Subbituminous
to high-volatile bituminous coals in the Tanjung Formation have low ash content
(2–6%) and moderate moisture (less than 14%). Average gas content is 220 scf per
ton. The major risk of the play is the thin cumulative coal pay thickness, which is 6
m on average and only 15 m at maximum. CBM in-place resources are estimated at
36 Tcf (1 Tcm). The Miocene Warukin Formation has thicker coal pay zones (average
20 m), but the coals are less mature (subbituminous) with a higher moisture content.
The average gas content is 170 scf per ton of coal. CBM resources are estimated at
66 Tcf (1.9 Tcm).
I-22 Chapter I

East Kalimantan—Kutei Basin

The Kutei Basin is located in East Kalimantan with the Mahakam Delta as the most prolific
part of the basin. Its Paleocene and Eocene geological history is characterized by the forming
of half-grabens caused by the rifting and sea floor spreading of the Makassar Straits and by
transgressive-regressive sequences that include marine shales and deltaic deposits with coal.
Compressional forces during the Miocene caused partial uplift of the area with development
of deltaic environments and shallow-water carbonate platforms. Various prospective shale
and coal horizons were deposited in these deltaic-to-shallow marine environments.
Four shale gas and four CBM plays have been mapped in the Eocene, Oligocene, Lower
Miocene, and Upper Miocene (see Figure I-23 and Figure I-24). The shale plays have medium
potential but the CBM plays are considered high potential. GIP resources of the Kutei Basin
have been estimated at 450 Tcf (12.7 Tcm) for shale gas and 250 Tcf (7.2 Tcm) for CBM.
• The Miocene shales have the best kerogen quality. Marine mudstones of the Lower
Miocene Pulau Balang Formation and deltaic shales of the Middle to Upper Miocene
Balikpapan Formation have maximum TOC values of 5.5% to 8%. However, the shales
are only buried to an average depth of 1,200 m and reach a maximum depth of 2,600
m for the Lower Miocene. Consequently, maturity is low and just reaches the gas
Chapter I I-23


window for the deepest parts. Gas content is low at an average of 30 scf to 35 scf per
ton of shale. The prospective area is limited to the most eastern onshore part of the
basin. Shale GIP resources for the two plays are estimated at 110 Tcf (3.2 Tcm). With
a high risk for maturity and gas content, the potential is considered low to medium.
• The Eocene and Oligocene shales are more mature but of poorer quality. With
maximum TOC values of 4%, Eocene and Oligocene shales are of mediocre quality.
Buried to depths of 2,000 m on average, shales have reached the wet-to-dry-gas
window. Gas content is calculated at 30 scf to 35 scf per ton of shale on average but
can yield up to 75 scf per ton in the most prospective horizons. Pay zones are 80
m to 100 m thick. The two plays hold GIP resources of 335 Tcf (9.5 Tcm) and are
considered medium potential.
• CBM plays offer significant potential. Eocene and Oligocene coals are present in
the central and western part of the basin and the Miocene coals farther to the east
along the coast. The Eocene and Oligocene coals are subbituminous to high-volatile
bituminous with a relatively high ash content (up to 15%) but with low moisture content.
Gas content is calculated at 190 scf to 450 scf per ton of coal. The younger Miocene
I-24 Chapter I

coals are more subbituminous with higher moisture content (up to 23%). Maximum
calculated gas content is 329 scf per ton of coal. The high prospective CBM plays
hold in-place resources of 250 Tcf (7.2 Tcm).
Northwest Kalimantan–Greater Tarakan Basin

The Tarakan Basin is a long, elongated rift margin along the northeastern coast of Kalimantan
(see Figure I-25). The basin originated in the Eocene with the formation of half-grabens
stepping down to the east and with infill of transgressive clastics, which includes shales
of the Sembakung Formation (see Figure I-26). After uplift in the Oligocene, renewed
transgression led to deposition of marine sediments in the Miocene, which includes shales of
the Naintupo and Meliat formations. At the end of the Middle Miocene, the area developed
shallow marine to deltaic depositional environments with deposition of coals in the Tabul
Formation.
Three shale gas and two CBM plays have been mapped: the Eocene Sembakung, the Lower
Miocene Naintupo, and the Middle Miocene Meliat shale gas plays, and the Meliat and
Tabul CBM plays. GIP resources for the shale plays are estimated at 407 Tcf (11.5 Tcm)
and for the CBM plays at 31 Tcf (0.87 Tcm).
Chapter I I-25


• The Eocene Sembakung Shale is the only play considered high potential. The
carbonaceous shales of the Sembakung Formation are predominantly of Type III and
minor Type II and have good kerogen quality. TOC values vary between 2.5% and 4.1%.
The formation is 250 m thick on average, and the average net pay zone is estimated
at 60 m. Buried to depths up to 3,000 m, maturity has reached the dry gas window
(vitrinite reflectance 1.3% to 1.8%). The prospective area extends over a large area
from north to south along the coast. The shale gas play is considered high potential,
and GIP resources are calculated at 117 Tcf (3.3 Tcm).
• The Naintupo and Meliat shales lack maturity to have adequate gas content.
However, the Lower Miocene Naintupo and Middle Miocene Meliat shales have a good
kerogen quality with maximum TOC values of 3.2% and 5%, respectively. The deepest
parts of the shale sections reach a maximum depth of 2,400 m, but large parts are only
buried to 1,000 to 1,500 m, resulting in low maturity of the shales. Consequently, gas
content is low—35 to 40 scf per ton of shale on average. GIP resources for the two
plays are estimated at 290 Tcf (8.2 Tcm).
I-26 Chapter I

• The two CBM plays are of mediocre quality. The coals of the Middle Miocene Meliat
and Upper Miocene Tabul formations are subbituminous to high-volatile bituminous
with a high moisture content of 18% to 25%. These coals have low gas content with an
average of 110 scf per ton of coal and a maximum of 190 scf per ton. GIP resources
for the two CBM plays are estimated at 31 Tcf (0.87 Tcm).
Papua
The area of potential shale gas plays extends over the Salawati Basin in the north to the
Bintuni Basin in the south (see Figure I-27). This is the only area in Indonesia that has
prospective plays of Paleozoic age. The Bintuni Basin forms a large monocline structure
with its deepest part in the east. Transgression in the Upper Carboniferous and Permian led
to deposition of marine shales in the Aifam Group (Aifat Formation). During the following
rifting phase, regressive shales of the Lower to Middle Jurassic Lower Kembelangan Formation
were deposited in a shallow marine environment (see Figure I-28). A large unconformity
separates the Lower Mesozoic from the Upper Mesozoic and Tertiary. Thermal sagging of
the Australian plate caused a marine transgression during the Paleocene to Upper Miocene.
Chapter I I-27


Shales of the Klasafet Formation were deposited during the Upper Miocene. Thrusting of
the region occurred during the Pliocene-Pleistocene with uplift in the east and subsidence
in the west.
The Salawati Basin to the north is separated from the Bintuni Basin by the Sekak Ridge
and Ayamaru Plateau. Only the upper Miocene Klasafet Formation is considered prospective
in the small Salawati Basin, which onlaps the Ayamaru Plateau to the east and steeply dips
to the west with Tertiary sediments exceeding more than 4 km in thickness.
Shale gas plays in the Permian Aifam Group and in the Jurassic Lower Kembelangan
Formation are high potential. Total GIP resources for Papua are estimated at 650 Tcf (18.4
Tcm).
• The Permian and Jurassic shales have excellent kerogen quality. With average TOC
values of 4% and maximum values exceeding 7% or even 10%, the quality of the mixed
Type II-III kerogen in the shales of the Aifam Group and Kembelangan Formation is
excellent. The shales have been buried to depths of 3,000 m or more and are highly
mature in the wet to dry gas window. Gas content is high, on average between 75 scf
and 105 scf per ton of shale. The Aifam Shale is thick with an average net pay zone
I-28 Chapter I

of 80 m, but the pay zone of the Kembelangan Shale is much thinner (average 30 m).
Both shales are high potential, and GIP resources for the Aifam play are estimated at
420 Tcf (11.9 Tcm) and for the Kembelangan play at 62 Tcf (1.7 Tcm). These plays
are only present in the central and southern part of the Bintuni Basin.
• The Upper Miocene Klasafet shale gas play is of low potential. With very low
TOC values of only 2% and a low level of maturity just reaching the wet gas window,
this play is of low potential. Two play areas have been mapped; the play area in the
Bintuni Basin to the south is buried deeper and has slightly better maturity than the
play in the Salawati Basin to the north. The south play has GIP resources of 136 Tcf
(3.9 Tcm) and the north play 30 Tcf (0.84 Tcm).
Conclusions of the Analysis of the Geological Framework and

Play Assessment
Indonesia has a large potential for shale gas and CBM plays, but because many of these
plays are geologically young, they also exhibit considerable risk. A total of 31 shale gas
and 14 CBM plays were analyzed on Sumatra, Java, East Kalimantan, and West Iryan
Jaya. Total GIP resources are estimated at 4,984 Tcf (141 Tcm) for shale gas and 1,093
Chapter I I-29


Tcf (30.2 Tcm) for CBM. Sumatra holds 38% of the shale gas resources and half of the
CBM resources. A quarter of the shale gas resources and 45% of the CBM are located in
southeast Kalimantan.
Most of the plays are of young geological age. The Oligocene and Miocene each hold about
a third of the shale gas resources; the Eocene 24% and the pre-Tertiary shales plays hold
only 10%. The relatively shallow burial of most plays results in low maturity of the shales,
and gas content is low in many instances, even for shales that have good kerogen quality.
Because of the high risk of low maturity and gas content, only 7 out of the 31 shale gas
plays are considered high potential: the Bampo Shale in North Sumatra, the Talang Akar
Shale in South Sumatra, the Tanjung Shale in the Barito Basin, the Sembakung play in the
Tarakan Basin, and the Aifam and Lower Kembelangan shales in Iryan Jaya. These high-
potential plays contain a total of 1,523 Tcf of GIP resources, which is 31% of the total GIP.
The medium-potential shale gas plays contain 35% of the total GIP resources.
Coals are highly prospective for CBM in many parts of Indonesia, in particular in Central
and South Sumatra and on East Kalimantan. Of the 14 CBM plays, 10 are ranked as high
potential and include 77% of all GIP resources (252 Tcf or 6.3 Tcm).
I-30 Chapter I

Details of the play resource assessment and risk analysis are provided in separate data tables
and are used for evaluating potential production capacity in Phase II of this study.
Chapter I I-31
Phase II: Production Potential of Indonesia’s

Unconventional Gas—Regulatory Framework,
Aboveground Risks, Activity, Costs, and Production
Capacity
Introduction
This section of IHS CERA’s investigation of the prospects for unconventional gas development
in Indonesia addresses both production potential and the possible regulatory and practical
constraints on this potential’s being fully realized.
Based on the application of IHS CERA’s methodology for risking the geological potential
as analyzed in Phase I of this study, as well as the aboveground constraints that determine
the expected timing of development, we see considerable potential for Indonesia to stimulate
an unconventional gas boom over the coming two decades. This could transform Indonesia’s
gas supply position not only by serving its growing domestic demand but also by extending
its position as a gas exporter.
However, there are significant geological risks, for example, in relation to whether the
relatively young shales in Indonesia will respond well to fracturing. Other keys to success
are whether the Indonesian industry as a whole is able to effectively manage various
aboveground enabling factors to ensure a positive investment climate, such as developing
infrastructure, bolstering service sector capability and scale, and establishing a streamlined
regulatory environment.
Ultimately, IHS CERA—using reasonable assumptions about geology and how the aboveground
factors are managed—considers its Low Case scenario the most probable. This results in
production of just over 11 billion cubic feet (Bcf) per day (114 billion cubic meters [Bcm]
per year), with peak production levels reached between 2030 and 2040. These volumes
would all be producible for a breakeven gas price of $12 per thousand cubic feet (Mcf) or
below, with shale gas representing over 60% of this—available at less than $6 per Mcf. The
cost-screened probable net recoverable resources for this case would be some 106 trillion
cubic feet (Tcf) (3 trillion cubic meters [Tcm]).
These results are based on a robust but ultimately theoretical set of models and assumptions.
In reality, any number of factors will intrude—possibly to improve these numbers (based on
geological potential alone, unconventional gas production from the region could be much
higher than this), but also possibly to constrain them. There are also many permutations for
the phasing of development of Indonesia’s unconventional resources. These permutations
depend, for example, on the relative pace of coalbed methane (CBM) versus shale gas
development and on which plays across the archipelago actually work and, in turn, the
impact this has on infrastructure development. So it should be emphasized that the results
of this study represent a very early effort to quantify a process that is highly uncertain on a
number of levels, beginning with the gas-in–place (GIP) volumes, as discussed in Phase I,
and extending to the play productivities, recovery ratios, costs, timing, and production plateau
Chapter II II-1
© 2012 IHS

levels covered in this section. The evaluation process, which combines a deterministic analysis
of specific geological and analogue play production data with a scenario approach to future
productive capacity outlooks, is summarized here and described in detail in Appendix A.
Context: Regulatory Environment And Industry Activity
Unconventional Gas Regulatory Environment

Some regulatory progress has been made in attempting to define the unconventional
framework, with CBM-specific regulations passed in 2008 and general unconventional gas
regulations passed in 2012. Although many points of clarification remain outstanding, as of
March 2012, 42 CBM production-sharing contracts (PSCs) had been signed and four more
were awaiting signature,
The government has recognized the challenges in developing unconventional gas resources
and has introduced tailored profit-sharing terms in CBM block agreements. In addition, the
government has suggested a new production-sharing arrangement that is intended to provide
some flexibility for investors. However, investor confidence will depend on the stability of
terms and how issues such as income tax, the domestic market obligation, local content,
and cost recovery are handled, since these rules have traditionally been subject to frequent
unilateral change. In addition, Indonesia has a legacy of slow decision making as a result
of numerous regulatory approvals involving many different regional and central government
entities with overlapping jurisdictions. This could constrain progress given the intensive and
large-scale nature of unconventional drilling operations.
Although oil and gas legislation provides processes for acquiring land access, the nature
of land holdings, including multiple owners; the unsystematic, fragmented land registration
regime; and difficulties involved in identifying traditional customary title holders, may lead
to challenges and delays in negotiating compensation and securing assured land access rights.
Thus, there may be potential for disputes that could cause delays in operations.
The issue of local content is also considered a potential challenge to the development
of CBM, and this obligation is also susceptible to frequent regulatory change. Currently
operators must use a minimum of 35% domestic content in their operations, and exceptions
require the approval of the Minister of Energy and Mineral Resources. The fast-moving
development of unconventional technologies and operational best practices coupled with
the need for a rapid buildup to large-scale operations in Indonesia could pose a significant
challenge to locally based suppliers.
Water access is generally not considered a challenge in Indonesia given the reasonably
abundant water supply and since competition for resources is dispersed across many remote
locations. There are a number of prescriptive environmental controls in federal and local
regulations as well as in model contracts. These may be relatively onerous in Indonesia in
comparison to other jurisdictions since some duplication appears to exist, such as requiring
environmental impact studies for all natural resource exploitation as well as a separate
environmental license.
II-2 Chapter II
© 2012 IHS
Although Indonesia has plentiful reserves, and there is a clear intention and impetus to
develop unconventional resources, the questionability of administrative processes and the
changing regulatory landscape may lead to a degree of reticence from potential investors.
Appendix D provides a more complete analysis of the main regulatory-related issues affecting
unconventional gas development in Indonesia.
Unconventional Gas Licensing and Operational Activity

A summary of the licensing and operational activity relating to CBM blocks is available as
additional files and maps on the study website.*
Licensing Activity Highlights

Exploitation of unconventional gas in Indonesia has so far been focused on CBM resources.
Since 2008, Migas set out a road map to award 5 to 10 contracts per year, and 50 CBM
licenses have been awarded to date, with 4 others awaiting signature. Operations on those
licenses are still largely at the stage of geological studies, and no commercial production has
yet been declared. Shale gas activities, on the other hand, have yet to take off beyond some
initial geological studies. As of March 2012, four consortiums had been given permission
to conduct geological studies, with some 33 other applications reported as pending. There
were no reported test wells targeting shale; contract terms and regulations were still under
discussion, and no contracts had been awarded.
Of the 50 CBM PSCs awarded, 33 had been awarded through direct negotiations, 15
through direct tender bidding rounds, and 2 from regular tender bidding. They are mostly
situated in the Central Sumatra, South Sumatra, Kutei, and Barito basins, with others in
the smaller Asem-Asem and Ombilin basins. The contract areas range from 300 to 2,000
square kilometers (sq km), averaging about 1,190 sq km.
Total work commitments during the exploration phase of the 50 CBM licenses amounted
to $296 million, comprising geological and geophysical studies and drilling of a total of
about 161 core holes and 132 exploration wells, dewatering and putting at least 65 pilot
wells into long-term production testing. Signature bonuses totaled $63.6 million and ranged
from $1 million to $4 million, averaging $1.3 million.
These awards reflect strong government support for CBM exploration. However, the activity
and spend is relatively modest compared with that for conventional exploration, which over
the same period, from 2008 to 2011, resulted in 132 license awards, $1,972 million in work
commitment, and $184 million in signature bonuses.
The government has been successful in attracting local or specialized companies into the
CBM exploration phase. Participation in the 50 CBM licenses awarded is dominated by over
20 local companies, whose net acreage holdings make up over 65% of the total. PT Sugico
Graha, a local private energy and mineral company, is the largest single net acreage holder,
website for Geological Framework Project Files.
Chapter II II-3
© 2012 IHS

with interests in 17 blocks, followed by PT Pertamina, with interests in 11 blocks. Other

notable local companies that have entered the exploration for CBM are Medco, Ephindo,
and Energi Mega Persada.
Majors and international players that have gained acreage through bidding (in partnership
with a local company or Pertamina) or through deals with local companies (acquiring
shareholdings or farm-in to local company’s interest) are BP, Total, ExxonMobil, and Eni
(through the Vico joint venture company, in partnership with BP in the Sanga-Sanga CBM
PSC). The blocks where the majors are involved are in the Kutei and Barito basins, for which
the Bontang liquefied natural gas (LNG) plant is a possible key market. Key international
independents include Santos and Dart Energy.
Drilling Activity Highlights

In the South Sumatra Basin, drilling was conducted by Medco, Dart Energy, and NuEnergy
in the Sekayu, Tanjung Enim, and Muara Enim CBM blocks, respectively. In its Sekayu
block, Medco has conducted dewatering and testing of two pilot test wells. Dart Energy
was due to complete a three-well pilot test program in first quarter 2012, and NuEnergy
initiated a two-well test program in first quarter 2012.
In Kalimantan, in the Kutei Basin, joint operators Dart Energy and Ephindo were reported
in October 2011 to be conducting dewatering operations on four pilot holes drilled in the
Sangatta I CBM PSC. Prior to the pilot test drilling campaign, three core holes were also
drilled in the Sangatta I CBM block. Vico had drilled at least nine core holes and six pilot
test wells in the Sanga-Sanga CBM PSC as of end-2011. Also in Kalimantan, in the Barito
Basin, three core holes were reported to be drilled by Sugico Graha in 2011, while PT
Uangel Sigma Energi drilled one core hole at the beginning of 2012 as part of a two-year
drilling campaign.
Productive Capacity Methodology

The methodology IHS CERA has used to estimate future production of unconventional
gas in Indonesia follows an approach similar to the previous IHS CERA Multiclient Study
Breaking with Convention: Prospects for European Unconventional Gas, which was adapted
from the approaches used in earlier IHS CERA Multiclient Studies looking at the long-term
potential in North America.*
From GIP to Net Recoverable Resource

The starting point is the analysis carried out in Phase I, specifically the assessments of gross
GIP for 45 distinct unconventional gas plays (31 for shale gas and 14 for CBM) reflecting
midrange (P50) estimates. All play areas were considered to be accessible, meaning that
net GIP was the same as gross GIP.
*See the IHS CERA Multiclient Studies Rising to the Challenge: Turning North America’s Unconventional Gas
Supply Potential into Reality and Cream of the Crop: Performance Analytics for North America Gas Resource Plays.
II-4 Chapter II
© 2012 IHS
The next step was to generate an estimate of the net recoverable resource of each play.
This was done by assuming a recovery of 20% of net GIP for shale gas plays and 50% for
CBM plays. These ratios were derived from experience in North America.
Risking the Resource: A Scenario Approach

From this point the analysis proceeded to risk these net recoverable resource figures, which
on an unrisked basis represent the full potential of the 45 unconventional plays being
considered. This resulted in a series of estimates for probable net recoverable resource
based on different risk factors. In addition to the unrisked resource case representing full
potential, five other cases were considered. Three of these are variations on a “risked” case
(risked-low, risked-medium, and risked-high) and the other two are considered “forecast”
cases (forecast-medium and forecast-high).
From these five cases, we judged three to be most appropriate in providing a Low Case,
Medium Case, and High Case for our overall analysis:
• The risked-medium case is taken as the Low Case. It assumes probable recovery
of 10% of the net recoverable resource from plays described as having high potential
in Phase I of this study, 5% from medium potential plays, and nothing at all from
low potential plays.
• The forecast-medium case is taken as the Medium Case. It assumes probable

recovery of 20% of the net recoverable resource from high-potential plays and 10%
from medium-potential plays. Again, nothing at all is assumed recoverable from plays
considered to have low potential.
• The forecast-high case is taken as the High Case for the overall analysis. It assumes
probable recovery of 30% from the net recoverable resource of high-potential plays,
15% from medium-potential plays, and 5% from low-potential plays.
The Low Case reflects a traditional exploration and production–type analysis whereby
technically recoverable resource is translated to resource at a ratio of around 10%. This more
conservative approach would be the one to use in securing debt financing. The Medium
Case represents our base outlook for plateau productivity capacity; this is a more aggressive
assessment of potential that could be used by companies with equity financing as they plan
their investments and cash flows. The High Case is our most risky plateau productive capacity
assessment, and it emphasizes upside potential from all categories of play.
The result of this analysis is an estimate of probable net recoverable resources for shale
gas and CBM for each of these three cases. These estimates are summarized in Figure II-1,
which shows how probable net recoverable estimates ranging from a Low Case of 110 Tcf
to a High Case of 338 Tcf (3.1 to 9.6 Tcm), and a Medium Case of 219 Tcf (6.2 Tcm),
have been derived from Phase I’s estimated gross GIP figure of 6,120 Tcf (173 Tcm). Note
that at this stage of the analysis, no cost screen is applied to the resource estimates.
Chapter II II-5
© 2012 IHS

Although we present risked results for 31 shale gas plays and 14 CBM plays, it is important
to keep in mind that the ratio of successful plays in North American has been only about
28% (7 out of 25). The reality is that some of the Indonesia plays will produce nothing at
all, while others will likely produce at significant rates. Given that Indonesia’s resources are
distributed across several islands, the uncertainty about whether individual plays will work
in practice is relatively large for each island and therefore for the market relating to each
island. This uncertainty could delay the pace at which new infrastructure is built.

Each play is classified as having high, medium, or low

potential based on an analysis of depth, pay zone thickness,
maturity, gas content, and kerogen quality or coal rank.

II-6 Chapter II
© 2012 IHS
Estimating Production Potential

The next step in the analysis was to convert these resource estimates into outlooks for
unconventional gas production, using North American analogues. Probable plateau production
for shale gas plays was based on the benchmark of the Barnett Shale, which reached plateau
production of 4.9 Bcf per day on the basis of 28 Tcf of commercial reserves (i.e., probable
net recoverable resources)—resulting in a shale gas analogue ratio of 0.175.*
Probable plateau production for CBM plays is estimated based on the analogue of San Juan
Basin in the western United States, where a production plateau of 2.75 Bcf per day was
reached on the basis of 35.6 Tcf of commercial reserves (probable net recoverable resources),
leading to a CBM analogue ratio of 0.0774.
The other important step in this part of the analysis involved assessing the time to first
production for each play based on assumed development pace, development risks, costs,
production potential, and an assessment of aboveground factors. From this analysis we
derived for each play three alternative start-up dates: a base case with an “on time” start-up,
along with “early” and “late” variations. Notionally each of these three scenarios for first
production timing could be linked with any production case, but for the purposes of our
analysis for Indonesia we have linked the “on time” scenario with the High Case, the “early”
start-up scenario with our Medium Case, and again the “on time” start-up with our Low
Case. The speed of ramp-up after first production is assumed on the basis of comparisons
with the Barnett Shale and San Juan CBM analogues.
Development Costs
The final stage of the analysis incorporates an explicit consideration of development costs.
The unit costs for each play have been assessed with reference to a breakeven gas price,
taking into account probable resources along with the economics of development, factoring
in well-grounded assumptions about productive capacity, capital expenditure, operational
expenditure, cost recovery, depreciation schedule, royalties, domestic market obligation,
and corporate tax. A 10% discount rate is used throughout. The cost assessment was
also influenced by judgments about production potential, a critical source of uncertainty;
contributing factors are illustrated by region for the high-potential and medium-potential
plays in tables that summarize the production potential, maturity window, and geological
potential of each play evaluated (see Appendix C).
Actual cost data from North America are used for four standard types of wells (shallow or
deep horizontal shale gas wells as well as vertical and quad-lateral CBM wells); these costs
are then adapted for each Indonesian play on the basis of regional cost differences as well
as the different characteristics of each play relative to the standard well types. QUE$TOR,
the IHS proprietary tool for cost estimation, provided the basis for cost differentials. The
resulting unit cost estimates for each play allow for a cost screen to be incorporated into
the production profiles, eliminating any plays with unit production costs above a specified
*The “analogue ratio” is the ratio of plateau production (in billion cubic feet per day) to the probable net recoverable
resource (in trillion cubic feet), in this case, 4.9 divided by 28, for a result of 0.175.
Chapter II II-7
© 2012 IHS

level (see Appendix B for details). For Indonesia, the cost screen was set at $12.00 per Mcf
at the wellhead. In the Low Case, this results in a cost-screened probable net recoverable
volume of 106 Tcf (3 Tcm), down from the 110 Tcf (3.1 Tcm) shown in Figure II-1.
The number of wells required for each play was estimated on the basis of assumptions
about well productivity derived from the analysis in Phase I along with the play plateau
productivity level.
Potential Resource
Though there are significant uncertainties—and hence limitations in the analysis—we estimate
the unrisked technically recoverable resource potential of Indonesia’s unconventional gas to
be 1,542 Tcf (43.7 Tcm) (see Figure II-2). At a cost of supply of $12.00 per Mcf ($11.70
per million Btu [MMBtu]), the resource potential is about 85% of North America’s and
one-third of China’s.*
Productive Capacity
Although we estimate that Indonesia has roughly more than 80% of the unconventional gas
resource potential of North America, it is still far too early to conclude that its productive
capacity will develop in the same proportion over the next two to three decades. Indonesia
is at a much earlier stage in the assessment and development of its unconventional gas;
and therefore the risk associated with this resource base must for now be perceived to be
very high. In this section, we assess the risked assumptions for recoverable resource and
productive capacity in the context of supply cost estimates for our three scenarios (the Low,
Medium, and High Cases) (see Figures II-3 and II-4). In addition to the risked resource
volumes that drive the scenarios, the key uncertainty of well productivity must be taken into
consideration. Each scenario is therefore tested with low-productivity, base-productivity, and
high-productivity profiles, illustrating the considerable impact of this variable on both cost
of supply and recoverable resource volumes.
A major inflection point can be seen in each supply cost level of about $12.00 per Mcf
($11.70 per MMBtu); using this supply cost as a cutoff and assuming base-case levels of
well productivity, risked recoverable volumes range from 106 Tcf to 325 Tcf (3 Tcm to 9
Tcm), with 212 Tcf (6 Tcm) in the Medium Case (see Figure II-3). At the low-productivity
level but assuming the same $12.00 per Mcf cost of supply, this range is reduced to 60 Tcf
to 181 Tcf (1.7 Tcm to 5.1 Tcm), with a Medium Case figure of 119 Tcf (3.4 Tcm). If
high-productivity levels are assumed, recoverable volumes are not markedly different than
in the medium-productivity case, but in this case the majority of the region’s unconventional
gas resource could be produced at a cost of less than $8.00 per Mcf.
The step in the cost-of-supply curve between $11.00 per Mcf and $11.70 per Mcf in the
base-productivity case arises since this is the modeled cost level range over which 98% of
Indonesia’s CBM risked recoverable resource can be produced. It is also of note that at that
*By comparison with results from IHS CERA’s Multiclient Studies Fueling North America’s Energy Future and
Breaking with Convention: Prospects for European Unconventional Gas.
II-8 Chapter II
© 2012 IHS

base productivity level, almost 60% of the resource in each of the three cases is available
at less than $6.00 per Mcf. This highlights a critical distinction between the costs of the
shale gas plays (typically in the range of $4.00 to $6.00 per Mcf) versus those of CBM
(typically in the range of $11.00 to $12.00 per Mcf) in Indonesia and of the importance for
policymakers to ensure that shale gas plays are tested early on. These costs are illustrated
in more detail under “Indonesia’s Unconventional Gas Low Case Outlook by Region.”
Each play in the model has a recoverable volume that varies with the risking parameters
in each scenario. This resource volume is then translated into a plateau productive capacity
through a North American shale gas or CBM analogue ratio, as described earlier. Aggregating
the plateau productive capacity levels for each play produces an upper-limit productive
capacity figure for gas production, one that is unconstrained by field development timing,
policy, or supply chain limitations (see Figure II-4).
Assuming the base productivity level for each scenario and a supply cost cutoff of $12.00
per Mcf, the range of plateau production levels is 14 Bcf to 44 Bcf per day (145 Bcm to
455 Bcm per year), with 29 Bcf per day (300 Bcm per year) in the Medium Case. In the
unlikely event that all plays show low productivity, the range shifts to 10 Bcf to 32 Bcf per
day (103 Bcm to 331 Bcm per year), with a Medium Case of 21 Bcf per day (217 Bcm per
Chapter II II-9
© 2012 IHS


year). In the equally unlikely case that all plays exhibit higher-than-expected productivity, there
would be little impact on the productive capacities at $12.00 per Mcf cost of supply—but
about 75% of this productive capacity could be achieved at costs of $6.00 per Mcf or less.
It is useful at this point to show how these assumptions for productive capacity play out
across the various regional plays. Figure II-5 shows plateau production levels as well as
unit costs for the Low Case, which, as already noted, takes a conservative approach toward
risking to provide the sort of production profile that might be used to raise debt finance.
Just 7%, or 106 Tcf (3 Tcm), of the total net recoverable (potential) resource is indicated
to provide this so-called debt financing productive capacity at an estimated cost of supply
of less than $12.00 per Mcf. These 106 Tcf of probable net recoverable gas, though, are
spread irregularly over 29 separate plays—18 shale gas plays that host 62 Tcf (1.8 Tcm)
and 11 CBM plays that hold the remaining 44 Tcf (1.2 Tcm). The unconstrained total risked
productive capacity of these plays is 14.2 Bcf per day (145 Bcm per year)—10.8 Bcf per
day (117 Bcm per year) from shale gas and 3.4 Bcf per day (35 Bcm per year) from CBM.
II-10 Chapter II
© 2012 IHS

North and South Sumatra, Kalimantan, and Papua are the areas of focus on shale gas
plays. Five shale gas plays are considered potentially to be substantial plays—one in North
Sumatra, two in South Sumatra, one in Kalimantan, and one in Papua—and give a total
risked productive capacity of 7.8 Bcf per day (81 Bcm per year) at a cost of supply of less
than $6 per Mcf. Of particular note are the Barito Tanjung Shale in Kalimantan (2.4 Bcf
per day, 25 Bcm per year), the Talang Akar Shale in South Sumatra (2.4 Bcf per day, 25
Bcm per year), and the Aifam Shale in Papua (1.7 Bcf per day, 18 Bcm per year).*
South Sumatra hosts the single substantial Muara Enim CBM play which could yield 1.4
Bcf per day (15 Bcm per year) though at an estimated cost of supply of $11.50 per Mcf.
CBM activity has already started in Indonesia, though there is no commercial production
yet, and early results from exploration, appraisal, and pilot production schemes are eagerly
awaited to provide a benchmark for productivity potential and commerciality.
*We define a substantial shale gas play as one with a plateau productive capacity in excess of 0.5 Bcf per day (5 Bcm
per year) at the risked-medium resource level. This equates to 10% of the plateau productive capacity for our Barnett
Shale play analogue.
Chapter II II-11
© 2012 IHS


Impact of timing on productive capacity outlooks

The development process for unconventional gas plays—from exploration and appraisal
through development (or relinquishment and abandonment)—in general follows a path similar
to that for conventional plays. There will be successes and failures, winners and losers.
Most, if not all, of the successful shale gas and CBM plays will be developed in phases,
probably by more than one operator. The timing of production start-ups will be staggered,
and observed productive capacities at any one time will fall short of the unconstrained
figures discussed above.
It is clear that the potential takeoff of unconventional gas production in Indonesia will be
constrained—particularly at the beginning—by the ability of supply chains to meet operators’
needs for human, material, infrastructural, and environmental resources (not to mention
financial needs and regulatory approvals). Although we have not explicitly quantified the
impact of supply chain constraints, we have attempted to approximate their impact on timing
through our estimates of time to first production. As noted earlier, each scenario is linked
with a different timing estimate: the Medium Case assumes start-up of CBM production
in 2016 (followed by shale gas in 2018); the High Case and Low Case assume first CBM
production in 2019 (shale gas in 2020).
II-12 Chapter II
© 2012 IHS
It should also be noted that these outlooks consider unconventional gas productive capacity in
isolation from factors such as gas demand and competing supply (whether from indigenous
conventional gas or from imports).
Figure II-6 shows the productive capacity profiles for shale gas and CBM plays under the
three cases, considering only those that can be developed at a cost of supply of $12.00 per
Mcf or less. Each represents a plausible outlook at the lower, middle, and upper ends of the
range of plateau productive capacity scenarios, based on the limited play data available for
Indonesia as well as an analysis using North American analogues The long tails evident in
each scenario are for the most part CBM developments, since our model has assumed the
higher cost of these plays results in their being fully developed later than the shale gas plays.
In the Medium Case, success comes early for operators in the plays with high and medium
potential—which is not to say that the most attractive sweet spots will necessarily be found
right away. In this scenario, unconventional production peaks at 24 Bcf per day (248 Bcm
per year) in 2032. Start-up comes a bit slower in the High Case productive capacity profile,
which peaks at 35 Bcf per day (362 Bcm per year) in 2036, reflecting a more optimistic
subsurface outcome. The Low Case, in which total unconventional gas output peaks at just
11 Bcf per day (114 Bcm per year) in 2036, represents geology less favorable than expected
along with substantial supply chain and regulatory obstacles.

(Bcf per day)

Source: IHS CERA.

20307-64
Chapter II II-13
© 2012 IHS

In Figure II-7 we show the productive capacity and cost-of-supply situation as of 2035 for
the Low, Medium, and High Case scenarios. For the unconventional gas plays the base
productivity assumption represents our best estimate of individual play productivity and
thus of unit cost; the low and high productivity cases simply illustrate the range of possible
outcomes.
We emphasize again that Indonesia’s unconventional gas potential is highly uncertain, and
the full geological potential (i.e., a potential recoverable resource of 1,542 Tcf [44 Tcm]
and hypothetical peak production capacity of 165 Bcf per day [1.7 Tcm]) has been heavily
risked to arrive at these volumes and rates (see Figures II-2 and II-8). For example, the
High Case plateau productive capacity peak rate at 35 Bcf per day (362 Bcm per year) is
just 21% of the potential resource rate, and the Low Case at 11.4 Bcf per day (118 Bcm
per year) is a mere 7%.

II-14 Chapter II
© 2012 IHS

(Bcf per day)

Source: IHS CERA.

20307-66
These three scenarios are part of the set of 18 productive capacity scenarios that have been
modeled in this study. These three and the remaining four on-time scenarios that cover the
range of assessed cost-screened probable net recoverable resource volumes are available on
the IHS CERA website.*
Indonesia’s Unconventional Gas Low Case Outlook By Region

In this section, we use the Low Case (medium-resource on time) scenario for these
productive capacity outlooks to give what we consider to be a realistic and relatively
conservative representation of the size of the resource developed and the elapsed time that
may be required to produce that resource in the Indonesian situation, by region. The Low
Case reflects our judgment on a credible outcome for how the unconventional resources
might be developed, taking account of how the industry and authorities might deal with the
logistical and regulatory challenges to accessing and developing the resources and building
the required infrastructure and service sector scale and capability. This outlook acknowledges
the policy support being given to CBM exploitation and the fact that CBM operations have
already started. It is quite possible that some blocks will be deemed commercially viable
and developed within a few years even if they are more expensive than shale gas plays.
*See Unconventional Frontier Indonesia – Productive Capacity Outlook (Appendix A) data and interpretation file
under Additional Research on the Unconventional Frontier—Indonesia website.
Chapter II II-15
© 2012 IHS

In our annual productive capacity outlooks, we also apply an upstream cost-of-supply screen
at $12.00 per Mcf that retains 85% of the plays and 93% of Indonesia’s net recoverable
resource while removing expensive productive capacity outliers.
Sumatra
The total net GIP we have estimated for Sumatra is 2,529 Tcf (72 Tcm), consisting of 1,988
Tcf (57 Tcm) of shale gas and 541 Tcf (15 Tcm) of CBM. From these net GIP figures, we
derive a net recoverable shale gas resource of 398 Tcf (11 Tcm) and 271 Tcf (8 Tcm) for
CBM, giving a total net recoverable resource of 668 Tcf (19 Tcm). The figures on a play
level are shown in Table II-1.
Based on our Low Case probable net recoverable resource volume of 49.6 Tcf (1.4 Tcm),
the unconstrained probable plateau productive capacity of Sumatra is 6.4 Bcf per day (66
Bcm per year). Almost three quarters of this capacity comes from seven shale gas plays,
six of which yield 4.5 Bcf per day (47 Bcm per year) at a cost of supply of less than $7.00
per Mcf and the seventh just 0.2 Bcf per day (2 Bcm per year) at a marginal cost of $13.30
per Mcf. The remaining 1.8 Bcf per day (19 Bcm per year) is vested in CBM plays at a
cost of supply between $11.00 and $11.50 per Mcf (see Table II-1 and Figure II-9).
The $13.30 per Mcf cost of supply mentioned above means that the Gumai Shale play in
South Sumatra failed the cost-of-supply screen and is not considered further in this analysis.
Shale Gas
South Sumatra is the key region for shale gas on the island. Two substantial plays, the
Talang Akar Shale and the Brown Shale, hold 236 Tcf (6.7 Tcm) of the region’s 290 Tcf
(8.2 Tcm) of net recoverable gas (see Table II-1 and Figure II-9). In our Low Case scenario,
the Talang Akar Shale carries a probable net recoverable resource of 13.9 Tcf (0.4 Tcm)
and an unconstrained productive capacity of 2.4 Bcf per day (25 Bcm per year). The Brown
Shale’s probable recoverable resource is 4.9 Tcf (0.14 Tcm), which gives a plateau rate of
0.9 Bcf per day (9 Bcm per year). Together these two plays account for more than 85% of
the region’s total of 3.8 Bcf per day (39 Bcm per year) at a cost of supply between $4.00
and $5.00 per Mcf. South Sumatra’s shale gas weighted-average cost of supply is $4.90
per Mcf.
North Sumatra has three shale gas plays with a total net recoverable resource of 68 Tcf
(2 Tcm) (see Table II-1). The Bampo Shale play has a probable net recoverable resource
of 3.6 Tcf (0.1 Tcm) and a substantial plateau productive capacity of 0.6 Bcf per day, two-
thirds of the total for the region, at a cost of supply of $5.20 per Mcf (see Figure II-10).
North Sumatra’s shale gas weighted-average cost of supply is $5.10 per Mcf.
Central Sumatra has a net recoverable shale gas resource of 40 Tcf (1.1 Tcm), equally
split between the Bangko Shale and Telisa Shale plays. Both are ranked out of consideration
in the Low Case because of their low geological potential.
West Sumatra has no identified shale gas resource.
II-16 Chapter II
© 2012 IHS
Table II-1
Sumatra: Low Case Resources, Production Potential and Timing of Shale Gas and CBM Plays
Low Case Productive

Capacity Time to First Production (Years)
Probable
Cost of Net Net Probable
Geological Supply ($ Net GIP Recoverable Recoverable Plateau Rate
Play Potential per Mcf) (Tcf) (Tcf) (Tcf) (Bcf per day) Early On Time Late
North Sumatra
INDO_SG01_N Sumatra_NSB Bampo Shale Play High $5.23 178 36 3.6 0.6 8 12 16
INDO_SG02_N Sumatra_NSB Peutu Shale Play Medium $4.75 101 20 1.0 0.2 8 12 16
INDO_SG03_N Sumatra_NSB Lower Baong Shale Play Medium $4.65 59 12 0.6 0.1 8 11 16
338 68 5.2 0.9
South Sumatra
INDO_SG04_S Sumatra_SSB Talang Akar Shale Play High $4.99 697 139 13.9 2.4 10 14 20
INDO_SG05_S Sumatra_SSB Gumai Shale Play Medium $13.26 110 22 1.1 0.2 24 34 47
INDO_SG06_S Sumatra_SSB Air Benakat Shale Play Medium $6.84 158 32 1.6 0.3 12 17 24
INDO_SG07_S Sumatra_CSB Brown Shale Play Medium $4.01 486 97 4.9 0.9 7 10 14
1,451 290 21.5 3.8

Central Sumatra
© 2012 IHS
INDO_SG08_C Sumatra_CSB Bangko Shale Play Low $13.60 98 20 0.0 0.0 26 36 50
INDO_SG09_C Sumatra_CSB Telisa Shale Play Low $6.84 101 20 0.0 0.0 13 18 25
199 40 0.0 0.0
Total Shale Gas Plays 1,988 398 26.6 4.7
South Sumatra
INDO_CBM01_S Sumatra_SSB Muara Enim CBM Play High $11.49 375 187 18.7 1.4 18 25 33
West Sumatra
INDO_CBM02_W Sumatra_Ombilin Sawahlunto CBM Play High $11.42 1 0.5 0.05 0.00 23 33 46
Central Sumatra
INDO_CBM03_C Sumatra_CSB Korinci CBM Play Medium $11.03 165 83 4.1 0.3 10 13 16
Total CBM Plays 541 271 22.9 1.8
Total Shale Gas and CBM Plays 2,529 668 49.6 6.4
Source: IHS CERA.
Chapter II II-17
The Unconventional Frontier—Indonesia


(Bcf per day) (Bcf per day)
Source: IHS CERA.

20307-72
CBM
South Sumatra is home to the only substantial CBM play on the island—the Muara Enim
CBM play (see Table II-1 and Figure II-9). It has a net GIP of 375 Tcf (10.6 Tcm) and net
recoverable resource of 187 Tcf (5.3 Tcm). In the Low Case scenario with a probable net
recoverable resource of 18.7 Tcf (0.5 Tcm), it carries a plateau productive capacity estimate
of 1.4 Bcf per day (15 Bcm per year) at $11.50 per Mcf cost of supply. South Sumatra’s
CBM weighted-average cost of supply is $11.50 per Mcf.
Central Sumatra has one medium-potential CBM play, the Korinci, with a net recoverable
resource of 83 Tcf (2.4 Tcm) at a cost of supply of $11.00 per Mcf. Its plateau productive
capacity in the Low Case scenario is put at 0.3 Bcf per day (3 Bcm per year) from a probable
net recoverable resource of 4.1 Tcf (0.1 Tcm). Central Sumatra’s CBM weighted-average
cost of supply is $11.00 per Mcf.
West Sumatra has a very minor CBM resource in the Ombilin Sawahlunto play, with a
net GIP of 1 Tcf (28 Bcm per year) and an estimated cost of supply of $11.40 per Mcf.
The probable net recoverable is put at 0.05 Tcf (1.4 Bcm per year), and the unconstrained
plateau productive capacity would be about 4 million cubic feet per day (0.04 Bcm per
year). West Sumatra’s CBM weighted-average cost of supply is $11.40 per Mcf.
North Sumatra has no identified CBM potential.
II-18 Chapter II
© 2012 IHS

Productive Capacity Outlook

In the Low Case scenario, Sumatra’s unconventional gas productive capacity starts to build
in the mid-2020s with shale gas projects in South Sumatra and North Sumatra and CBM
projects in Central Sumatra (see Figure II-10). North Sumatra’s substantial Bampo Shale
play is on its 0.6 Bcf per day plateau (6.2 Bcm per year) from 2031 to 2036.
Chapter II II-19
© 2012 IHS

South Sumatra’s outlook is dominated by two substantial shale gas plays and a single
substantial CBM play. Plateau productive capacity at over 3 Bcf per day (31 Bcm per year)
is maintained for nine years, from 2033 to 2041, peaking at 3.8 Bcf per day (39 Bcm per
year) in 2038. By this time, the shale plays are in decline, and the Muara Enim CBM play
is only partially compensating for this by ramping up production, which reaches a plateau
of 1.4 Bcf per day (15.5 Bcm per year) in 2045. Central Sumatra by comparison is not well
endowed but benefits from minor CBM developments, giving a plateau rate of 0.3 Bcf per
day (3 Bcm per year) over a 25-year period from the mid-2030s.
Kalimantan
The total net GIP for Kalimantan is 2,155 Tcf (61 Tcm), with a net recoverable resource
of 569 Tcf (16 Tcm), of which 339 Tcf (9.6 Tcm) is found in 11 shale gas plays and 230
Tcf (6.5 Tcm) in 10 CBM plays (see Table II-2).
The Low Case scenario shows a probable net recoverable resource of 45.7 Tcf (1.3 Tcm),
with a subequal split of 23.4 Tcf (0.7 Tcm) for shale gas and 22.3 Tcf (0.6 Tcm) for
CBM. The unconstrained plateau productive capacity is estimated to be 5.8 Bcf per day (60
Bcm per year), with 70% coming from shale gas plays (see Table II-2 and Figure II-11).
Kalimantan’s unconventional gas weighted-average cost of supply is $7.89 per Mcf.
Shale Gas
Under the Low Case scenario more than 50% of the 4.1 Bcf per day plateau productive
capacity comes from one shale gas play—the Barito Tanjung. With its 137 Tcf (4 Tcm)
of net recoverable and 13.7 Tcf (0.4 Tcm) of probable net recoverable resource, it should
yield 2.4 Bcf per day (25 Bcm per year) at a cost of supply of $4.40 per Mcf (see Table
II-2). Three moderate shale gas plays—the Kutei Eocene, Tarakan Sembakung, and Tarakan
Naintupo—add another 1.1 Bcf per day (11.4 Bcm per year) in subequal shares and at a
cost of up to $5.50 per Mcf. Kalimantan’s shale gas weighted-average cost of supply is
$4.63 per Mcf.
CBM
Under the Low Case scenario eight CBM plays with 22.3 Tcf (0.6 Tcm) of probable net
recoverable gas give an unconstrained total plateau productive capacity of 1.7 Bcf per day
(18 Bcm per year) (see Table II-2). There is no dominant play, but three plays—Barito
Warukin, Kutei Eocene, and Kutei Balikpapan—each show a plateau productive capacity
of 0.3 Bcf per day (3 Bcm per year).
With estimated costs of supply just over $30.00 per Mcf, the Tarakan Meliat and Tarakan
Tabul CBM plays, with a combined probable net recoverable resource of 0.7 Tcf (20 Bcm
per year) net recoverable, were not considered further. Kalimantan’s CBM weighted-average
cost of supply is $11.43 per Mcf.
II-20 Chapter II
© 2012 IHS
Table II-2
Kalimantan: Low Case Resources, Production Potential and Timing of Shale Gas and CBM Plays
Low Case Productive

Probable
INDO_SG10_Kalimantan_Barito Tanjung Shale Play High $4.43 683 137 13.7 2.4 9 13 18
INDO_SG11_Kalimantan_Barito Berai Shale Play Low $6.84 98 20 0.0 0.0 13 18 25
INDO_SG12_Kalimantan_Kutei Eocene Shale Play Medium $4.99 232 46 2.3 0.4 12 16 23
INDO_SG13_Kalimantan_Kutei Oligocene Shale Play Medium $4.64 104 21 1.0 0.2 11 15 21

INDO_SG14_Kalimantan_Asem Eocene Shale Play Low $8.54 27 5 0.0 0.0 22 30 41
INDO_SG15_Kalimantan_Asem Oligocene Shale Play Low $7.15 30 6 0.0 0.0 18 25 34
INDO_SG16_Kalimantan_Kutei Lower Miocene Shale Play Medium $6.85 56 11 0.6 0.1 12 17 24
INDO_SG17_Kalimantan_Kutei Balikpapan Shale Play Medium $4.09 56 11 0.6 0.1 7 10 14
INDO_SG18_Kalimantan_Tarakan Sembakung Shale Play High $5.50 117 23 2.3 0.4 17 23 33
INDO_SG19_Kalimantan_Tarakan Naintupo Shale Play Medium $4.35 148 30 1.5 0.3 10 14 19
INDO_SG20_Kalimantan_Tarakan Meliat Shale Play Medium $4.08 141 28 1.4 0.2 7 10 14

Total Shale Gas Plays 1,693 339 23.4 4.1
© 2012 IHS
INDO_CBM04_Kalimantan_Barito Warukin CBM Play High $11.18 66 33 3.3 0.3 11 16 21
INDO_CBM05_Kalimantan_Kutei Eocene CBM Play High $11.49 71 36 3.6 0.3 24 33 45
INDO_CBM06_Kalimantan_Kutei Oligocene CBM Play High $11.65 48 24 2.4 0.2 24 34 45
INDO_CBM07_Kalimantan_Barito Tanjung CBM Play High $11.49 36 18 1.8 0.1 24 34 45
INDO_CBM08_Kalimantan_Asem Eocene CBM Play High $11.64 33 17 1.7 0.1 24 34 46
INDO_CBM09_Kalimantan_Kutei Lower Miocene CBM Play High $11.49 59 30 3.0 0.2 24 34 45
INDO_CBM10_Kalimantan_Kutei Balikpapan CBM Play High $11.33 73 36 3.6 0.3 6 8 11
INDO_CBM11_Kalimantan_Asem Miocene CBM Play High $11.33 43 22 2.2 0.2 23 32 43
INDO_CBM12_Kalimantan_Tarakan Meliat CBM Play Medium $30.42 18 9 0.4 0.0 75 104 140
INDO_CBM13_Kalimantan_Tarakan Tabul CBM Play Medium $30.90 13 6 0.3 0.0 76 105 143
Total Shale Gas and CBM Plays 2,155 569 45.7 5.8
Source: IHS CERA.
Chapter II II-21


Source: IHS CERA.

20307-74

The onset of major projects in several plays comes during 2019–23 and is followed by a
decade of intense development that ramps up the production capacity to a plateau level of
just over 4 Bcf per day (41 Bcm per year) (see Figure II-12). Though CBM exploration,
appraisal, and pilot production schemes are carried out, on cost-of-supply grounds at $4.00 to
$6.00 per Mcf, shale gas becomes the unconventional gas source of choice, with the Barito
Tanjung shale play predominant. CBM cost of supply is found to be two to three times
more expensive than that of shale gas, which does not encourage wide-scale investment in
this gas source over the same time frame, and its contribution is about 0.5 Bcf per day (5
Bcm per year) until the mid-2040s.
Java
The total net GIP for Java is 789 Tcf (22 Tcm), more than 90% of which is shale gas. The
net recoverable resource is 174 Tcf (5 Tcm) (see Table II-3).
Java’s probable plateau productive capacity in our Low Case scenario is 0.6 Bcf per day
(6.2 Bcm per year) from shale gas and 0.1 Bcf per day (1 Bcm per year) from CBM (see
Table II-3 and Figure II-13).
II-22 Chapter II
© 2012 IHS

(Bcf per day)

Source: IHS CERA.

20307-77
Shale Gas
The Low Case scenario comprises just two medium-potential shale plays, both of which
are located in West Java—the Jatibarang Shale and Talang Akar Shale. They each show a
probable plateau productive capacity of 0.3 Bcf per day (3 Bcm per year).
Five shale gas plays with a combined net recoverable resource of 84 Tcf (2.4 Tcm) were
eliminated from further consideration by their low geological prospectivity. Two of these
plays, however, the West Java Batu Raja and Upper Cibulakan plays, could provide an
upside surprise, as they host 25 Tcf (0.7 Tcm) of net recoverable gas at estimated supply
costs of less than $5.00 per Mcf. Java’s (West Java) shale gas weighted-average cost of
supply is $5.16 per Mcf.
CBM
West Java’s Talim Akar CBM play, with a net GIP of 56 Tcf (1.6 Tcm), was eliminated
by the $12.00 per Mcf cost screen, although it was a marginal case. Even had it gone
through, it would have added no more than 0.1 Bcf per day (1 Bcm per year) to the region’s
productive capacity outlook
Chapter II II-23
© 2012 IHS
Table II-3
II-24
Java: Low Case Resources, Production Potential and Timing of Shale Gas and CBM Plays
Low Case Productive

Probable
INDO_SG21_Java_West Java Jatibarang Shale Play Medium $5.23 161 32 1.6 0.3 9 13 18
INDO_SG22_Java_West Java Talang Akar Shale Play Medium $5.09 155 31 1.5 0.3 9 13 17
INDO_SG23_Java_West Java Batu Raja Shale Play Low $4.99 58 12 0.0 0.0 9 13 18
INDO_SG24_Java_West Java Upper Cibulakan Shale Play Low $4.43 67 13 0.0 0.0 8 12 16
INDO_SG29_Java_East Java Ngimbang Shale Play Low $17.61 134 27 0.0 0.0 34 47 65
INDO_SG30_Java_East Java Kujung Shale Play Low $8.36 125 25 0.0 0.0 16 22 30
INDO_SG31_Java_East Java Tuban Shale Play Low $13.60 33 7 0.0 0.0 26 36 50
Total Shale Gas Plays 733 147 3.2 0.6
INDO_CBM14_Java_West Java Talang Akar CBM Play Medium $12.67 56 28 1.4 0.1 30 42 56

© 2012 IHS
Total Shale Gas and CBM Plays 789 174 4.6 0.7
Source: IHS CERA.

The Unconventional Frontier—Indonesia An
Chapter II
IHS CERA Multiclient Study

Source: IHS CERA.

20307-75

Java’s productive capacity profile is similar to that of North Sumatra’s substantial Bampo
shale play but comes from two medium potential plays, each giving 0.3 Bcf per day (3 Bcm
per year) over the short-lived plateau period of 2032–37 (see Figure II-14).
Papua
Papua’s net GIP is 648 Tcf (18 Tcm) from four shale gas plays, which translates into 130
Tcf (3.7 Tcm) of net recoverable gas (see Table II-4). When risked according to the Low
Case scenario, the probable net recoverable resource becomes 9.7 Tcf (0.3 Tcm), and the
probable plateau productive capacity is put at 1.7 Bcf per day (18 Bcm per year) (see Table
II-4 and Figure II-15).
Shale Gas
Almost 90% of Papua’s productive capacity is expected to come from one substantial play,
the Papua Aifam Shale play in northwest Papua. It has a probable net recoverable resource
of 8.4 Tcf (0.2 Tcm) and an estimated cost of supply of just less than $4.00 per Mcf. The
second shale play is the 1.2 Tcf (0.034 Bcm per year) probable net recoverable Papua Lower
Kembelangan Shale play that would add just 0.2 Bcf per day (2 Bcm per year) to the region’s
productive capacity. Papua’s shale gas weighted-average cost of supply is $4.16 per Mcf.
Chapter II II-25
© 2012 IHS


(Bcf per day)

Source: IHS CERA.

20307-78
CBM
There is no CBM potential.

Papua’s productive capacity of about 1.7 Bcf per day (17 Bcm per year) stems almost wholly
from the substantial Papua Aifam Shale play in the northwestern part of the region. In the
Low Case scenario, production ramps up from 2022 to 2031, followed by a five-year plateau
period and two decades of declining but nonetheless valuable production (see Figure II-16).
Indonesia Unconventional Gas Productive Capacity Outlook

Summary
Overview
We now sum the Low Case regional outlooks to give a total Indonesia outlook and the
breakdown of productive capacity between shale gas and CBM sources. Additionally, we
indicate the number of wells needed to generate the productive capacity, the cost of drilling
those wells, and the number of rigs required to be deployed.
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Table II-4
Papua: Low Case Resources, Production Potential and Timing of Shale Gas and CBM Plays
Low Case Productive

Probable
INDO_SG25_Papua_Papua Aifam Shale Play High $3.94 421 84 8.4 1.5 8 11 15
INDO_SG26_Papua_Papua Lower Kembelangan Shale Play High $5.62 62 12 1.2 0.2 12 16 23
INDO_SG27_Papua_Papua Klasafet Shale North Play Low $6.72 30 6 0.0 0.0 13 18 24
INDO_SG28_Papua_Papua Klasafet Shale South Play Low $4.99 136 27 0.0 0.0 9 13 18
Total Shale Gas Plays 648 130 9.7 1.7
Total CBM Plays 0 0 0 0
Total Shale Gas and CBM Plays 648 130 9.7 1.7
Source: IHS CERA.

© 2012 IHS
Chapter II II-27


Source: IHS CERA.

20307-76

(Bcf per day)

Source: IHS CERA.

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The large-scale development of Indonesia’s unconventional gas productive capacity according
to our Low Case scenario starts in Kalimantan in 2019 and is rapidly followed by South
Sumatra in 2020 and Papua in 2022 (see Figure II-17). A steady ramp-up in each region
ensues until rates in excess of 10 Bcf per day (103 Bcm per year) are established and
maintained from 2032 to 2038. A peak rate of 11.4 Bcf per day (118 Bcm per year) is
reached in 2036. Kalimantan and South Sumatra between them generate more than two-
thirds of the peak productive capacity and in the latter part of the outlook period, as from
2043, in excess of 80%.
For the first 20 years of unconventional gas production in Indonesia, shale plays are the
gas source of choice based primarily on their generally lower cost of supply than CBM
resources (see Figure II-18). From the mid-2030s onward, however, with shale gas production
in decline, CBM becomes an increasingly important source of gas supply, and by the late
2040s it is contributing more productive capacity than shale gas.
In practice, generating the unconventional gas productive capacities as indicated in the Low
Case planning scenario will require a substantial investment of resources—human, financial,
material, and environmental. In Figure II-19 we show for the productive capacity outlook
given in Figures II-17 and II-18 the number of wells (or more precisely the number of around
4,500 feet subhorizontal lateral sections) to be drilled by year, the well capital expenditure,
and the rig count (see the section on Development Costs in this chapter and Appendix B:
Costs for Unconventional Gas Development, for more details).

(Bcf per day)

Source: IHS CERA.

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(Bcf per day)

Source: IHS CERA.

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For the near two-decade main phase of intensive shale gas play developments and limited
CBM development, a fleet of up 250 rigs at a cost of up to $9 billion per year would be
required to drill some 1,725 drainage sections in 2030 and 2031 to give a peak productive
capacity of 11.4 Bcf per day (118 Bcm per year). As the shale gas plays decline and CBM
production builds up to no more than 3.4 Bcf per day (35 Bcm per year) by the mid-2050s,
the rig requirement drops to a maximum of 150 at a cost of about $6 billion per year.
Chapter II II-31
© 2012 IHS
PHASE III: THE FUTURE OF UNCONVENTIONAL GAS

IN THE INDONESIAN DOMESTIC AND EXPORT MARKET CONTEXT
INTRODUCTION
Unconventional gas could potentially have a transformational impact on Indonesia. On
present trends, it will be necessary for Indonesia gradually to reduce its liquefied natural
gas (LNG) exports in order to meet domestic needs. Unconventional gas production could
solve this problem in the long term, enabling Indonesia to meet growing domestic demand
while also increasing exports of LNG.
This outlook uses the Low Case assumptions for unconventional gas production, as described
in Phase II and identified as the most appropriate planning case. This scenario reflects the
risked-medium resource case with an on-time start-up, with first coalbed methane (CBM)
production in 2019 and first shale gas in 2020, and total unconventional output reaching a
peak of some 118 billion cubic meters (Bcm) per year in 2036 (see Figure II-6 in Phase II).
This outlook includes only those plays assessed to be cost competitive with the traditional
oil-linked gas prices that continue to prevail in the region.
This section analyzes five areas—the outlook for demand, the supply/demand balance,
infrastructure, supply costs, and the opportunity for LNG exports—to assess the impact of
unconventional gas on the Indonesian market.
INDONESIA’S LARGE POTENTIAL UNCONVENTIONAL GAS: OVERCOMING

OBSTACLES
Indonesia is of course already a major gas exporter as well as a sizeable gas market: in 2011
exports amounted to 40 Bcm (of which 30 Bcm was LNG), while domestic consumption
totaled 44 Bcm. It also has very large upstream gas potential, and as described in Phases I
and II this includes a significant potential resource of shale gas and CBM.
The question of whether Indonesia will succeed in developing its unconventional gas resources
is a crucial one, not only for the country’s economy and energy security, but also for the
Asian gas market overall. The answer to this question is linked partly to geology, of course,
given that unconventional gas exploration in Indonesia—particularly for shale—remains in
its infancy, meaning that a great deal of uncertainty remains.
Indonesia’s unique geography along with its ability to execute on policy and other
aboveground factors, as discussed in Phase II and Appendix D, add further challenge to
the question of whether Indonesia will succeed in exploiting its unconventional resources.
In terms of policy, the government clearly understands the large benefit to the national
interest of a booming unconventional gas sector. But translating this understanding into
specific policies could be challenging owing to a variety aboveground factors; to encourage
the development of unconventional gas in a timely fashion will require alignment on land
access, infrastructure development, and many other issues among a range of state entities
and authorities. Indonesia’s mixed track record in expediting policy and regulatory issues
Chapter III III-1

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means that it will require serious and visible reforms, and some early successes, before the
confidence needed to unlock large and broad investments is in place. However, once the
process is set in motion, the impact could be powerful indeed.
DEMAND OUTLOOK: GROWING BUT CONCENTRATED

Indonesia is one of the fastest growing economies in the region. This rapid growth is expected
to continue in the long term and will drive energy demand. Gas will be a favored fuel first
for large consumption anchors such as power stations and industry. Several key points can
be highlighted from the demand analysis:
• Strong and robust growth in domestic gas demand. Growth is supported by expansion
of the domestic and export-based economy. Population growth and urbanization are
key factors.
• Domestic gas demand is separated by region. Demand is geographically dispersed

(across 5,500 kilometers [km] east to west, and thousands of islands) and not well
interconnected. More than 50% of total gas demand in Indonesia is concentrated in
Java. Sumatra is the second largest demand center.
• Power and industrial are the main gas consuming sectors. Gas demand from the
domestic and transportation sectors is expected to remain modest owing to constraints
in pipeline infrastructure and distribution networks. Fertilizer industry demand is
distributed closer to supply in peripheral regions such as Papua.
• Domestic gas sector demand is heavily affected by policy. Policies on the energy
mix, price subsidies for energy products (in particular for the power and fertilizer
sectors), and domestic market obligation (DMO) rules are all significant factors shaping
the domestic market.*
The key drivers of gas demand are economic growth and population growth. Indonesia’s
archipelago formation makes it quite unique in terms of gas market analysis. This grouping of
islands adds the complication of offshore and onshore infrastructure that must be constructed
to support growth.
Economic Growth Outlook

Indonesia is expected to experience sustained economic growth in the long term. Figure
III-1 illustrates IHS Global Insight’s planning case outlook for Indonesian economic growth
through 2030. This outlook is for annual GDP growth rates in a range of 5.5% to 6.5%
moderating slightly after 2015 to reach a long-term growth rate of about 5% per year.
Key long-term trends in the Indonesian economy, such as increasing industrialization and
urbanization coupled with the declining contribution of agriculture, will drive growth in
energy demand as well as choices of future energy sources, as shown in Figure III-2.
*On December 31, 2009, the Ministry of Energy and Mineral Resources (MEMR) issued a regulation on the
Preferential Supply of Domestic Mineral and Coal Demands (“PerMen No. 34/2009”), also known as the DMO.
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Source: IHS Global Insight.

20307-88
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With a population of 246 million, Indonesia is the world’s fourth most populous country,
and its population is continuing to grow while also urbanizing at a rapid rate (see Figure
III-3). This growing urbanization will support increasing energy consumption.
Indonesia’s population as well as its economic activity is largely concentrated on the

islands of Java and Sumatra, as shown in Figures III-4 and III-5. Java is the country’s most
industrialized and wealthiest region.
Most manufacturing is based in Java because of its supply chains and its large supply of
labor. However, for the fertilizer industry, proximity to natural gas supply remains crucial,
making Kalimantan and Sumatra currently the preferred locations for larger fertilizer plants.
Future plants are being planned in tandem with gas development in more remote regions
such as Papua and Sulawesi. Figure III-6 shows the regional breakdown of Indonesia’s
existing urea production capacity.
ENERGY POLICY DIRECTION
Energy Mix Outlook for 2025 and Natural Gas Policy

Indonesia’s gas policy reflects a focus going back more than 50 years on providing affordable
energy to the population, focused initially on fuel oil. Since Indonesia became a net oil
importer in 1997, this policy targeted growing subsidies of fuel oil and diesel which were
finally removed for industrial users in 2005.

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Chapter III III-5

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As discussed in Appendix D, the emerging energy policy of the Indonesian government,

as laid out in a policy document called “Vision 2025,” is designed to reduce fuel usage in
general through gains in energy efficiency while also increasing significantly the share of
renewables in the energy mix. This new policy, which revised the previous policy set forth
in 2006, had as one goal the maintenance of LNG export even in the face of a growing
domestic economy. The introduction into the picture of new gas potential in the form
of unconventional gas development could reduce the urgency of reducing domestic gas
consumption, a goal which new gas supply would render less pressing.
Figure III-7 shows the highlights of the new policy and its targets for energy consumption
in 2025.
Within the Vision 2025 approach, policies toward the gas sector are focused primarily on
gradually removing price subsidies for domestic gas sales and thus reducing consumption
through price discipline, while also providing further incentives for investment in new gas
supply.
The major points of national gas policy are as follows:
• Providing incentives for exploration and production. As discussed in Appendix D,

the government intends to speed up the process of opening new areas to exploration,
including for CBM and shale gas.
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• Gas pricing policy. Domestic gas sales are made through negotiations on a field-by-
field basis, with pricing based on the development economics for specific fields and set
by negotiations among the downstream regulator BPH Migas, producers, and buyers.
Prices are fixed for the term of the supply contract and are based on either crude
oil or oil product prices, or a combination. For “general users”—industries without
subsidies as well as power generators—the negotiated prices are now supposed to
reflect market conditions, while allowing for a reasonable margin for producers. (This
is based on Decree 19/2009 of the Ministry of Energy and Mineral Resources.) For
“special users”—households, small industry, and subsidized sectors—prices are directly
regulated by BPH Migas. The general intention is to move industrial users from the
subsidized sector into the market-based system of pricing.
• Gas allocation policy. Within this context, state policy continues to affirm that gas
should be prioritized for domestic use before export, including for new discoveries.
This concept is the basis for the DMO, which survives in revised form under the new
policy.
Chapter III III-7

© 2012 IHS

Infrastructure Development
As indicated in Appendix D, downstream infrastructure availability is a key issue in the
exploitation of unconventional gas resources. The government has taken a top-down approach
toward building infrastructure that would increase the perceived security of domestic gas
supply, based on a master plan for gas infrastructure development that would link remote
supply to areas of domestic demand. Pertamina’s insistence on fulfilling domestic gas needs
has had a major influence on government policy, with PT PGN also playing a crucial role
as the main transmission company.
Figure III-8 shows one projection—based on government gas-balance data—of declining

gas export (as a share of production) as domestic gas demand per capita grows steadily
through 2035.
Impact of Downstream Oil Policy

In connection with the government’s goal to decrease the share of oil in the fuel mix over
time, policymakers are planning to reduce spending on energy subsidies by 40% by 2013
and to fully eliminate oil product subsidies by 2014. At present subsidies have been limited
to households, small businesses, and public transportation and services, but even these are
scheduled to be phased out. The impact of this rapidly growing price discipline in the oil
product downstream is to provide industrial consumers with a greater incentive to shift to
natural gas.

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Domestic Gas Demand Outlook

Gas consumption today is about 45 Bcm per year, with most of this concentrated in power
generation and industrial demand and the residential/commercial sector remaining smaller.
Looking forward, total gas consumption in Indonesia is likely to grow consistently over the
course of the next decade (see Figure III-9). In IHS CERA’s planning case scenario (which
reflects assumptions from our Low Case, as described in Phase II), power generation remains
the driver of gas demand, which grows at an average rate of 2.9% annually to reach about
77 Bcm by 2030.
The gas demand outlook by sector is as follows (see Figure III-9):
• The power generation and industrial sectors will continue to drive demand growth.
Export-based industrial growth will remains strong, with a particular focus on fertilizer
exports continuing.
• The residential/commercial and transportation sectors will continue to grow more

modestly, owing to low penetration, partly as a result of constraints in gas transmission
and distribution.
• The specific impact of policies on gas allocation, subsidy, and pricing will continue
to have a major influence on demand.

Chapter III III-9

© 2012 IHS

Geographical Outlook
Overall, it is clear that gas demand will remain heavily concentrated in Java and Sumatra.
Java remains the focus of economic growth, with an industrial focus, and benefits from an
existing extensive pipeline network. Sumatra will continue to catch up, driven by population
growth and urbanization as well as continuing build-out of the pipeline network. In Kalimantan
and Papua, gas demand will depend on the rate of expansion of new export-based industries,
with the fertilizer industry in Papua as a major area of growing consumption. The regional
breakdown of domestic gas consumption is shown in Figure III-10.
Figure III-11 shows the outlook for sectoral gas consumption in Java. Power generation will
drive growth, boosted not only by growing electricity demand but also by the progressive
conversion of existing generation based on fuel oil to gas, driven by the phaseout of subsidies
for fuel oil.
The outlook for Sumatra is shown in Figure III-12. Here growth in the use of gas for power
generation will be constrained by plans to construct new coal-fired generation. Strong growth
should take place in the fertilizer sector, with a major new plant in Aceh accounting for
significant growth in gas consumption, assuming that infrastructure development makes this
possible.
The prospects for gas demand for Kalimantan are shown in Figure III-13. This is a sparsely
populated region with limited electricity demand; most growth is expected to come from
fertilizer plants.

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Demand growth will grow strongly, albeit from a small base, in Papua, Sulawesi, and other
regions (see Figure III-14). One can expect to see some development of the fertilizer industry
in Papua and Sulawesi, as well as some conversion of generation from fuel oil to gas and
the progressive electrification of remote areas. However, owing to their small population
and geographic isolation, these regions will continue to play a minor role in Indonesian
gas demand.
KEY INSIGHTS: MATCHING SUPPLY AND DEMAND

As discussed in Phase II, IHS CERA selected a Low Case scenario as a planning case,
and in this section we are using the same scenario in relation to the IHS CERA demand
outlook for Indonesia. This scenario sees unconventional production starting to take off
around 2020 and peaking in 2036. It is based on a medium-risked resource base and on-time
production schedule and was selected from a wide range of possible development scenarios,
reflecting wide uncertainty in production level, timing, and costs as a result of geological
and aboveground factors.
Meanwhile, we estimate that Indonesia’s conventional gas production will stabilize over
the next five years, with some room for growth in supply in the second half of the current
decade. The main area of production decline is expected to be Sumatra, mainly the Aceh
region but also the main producing areas of South Sumatra. This will be balanced (and for
a period of time after 2015, outweighed) by additional conventional gas production from
offshore development projects in the Kutei Basin off Kalimantan.
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Based on this outlook, on the basis of conventional production alone, Indonesia will not be
able to take full advantage of its LNG export capacity while also meeting domestic demand
growth. Clearly, in the planning case, unconventional production also does not support LNG
export capacity until well after 2020. Unless there is a much accelerated production from
CBM or shale gas, Indonesia will struggle to avoid a situation in which existing liquefaction
capacity is lying idle or else used increasingly as part of the domestic gas supply chain.
On current trends, a significant and growing share of LNG production in Indonesia across
different projects is on course to be diverted from export and instead dedicated to domestic
consumption. This withdrawal of export supplies could be reversed or prevented if and
when additional unconventional production volumes are brought online and connected to
Indonesian demand centers on Java as well as Sumatra.
Indonesia’s other outlets for gas export are three pipelines connecting Indonesian supply
with the Singaporean and Malaysian markets: two from distant offshore fields in the Natuna
Sea and one from Sumatra itself. Exports through these pipelines are expected to continue
at contracted levels, but extending these contracts will be challenging from the supply side
unless greater productive capacity can be brought online. Even as its LNG import capacity
continues to develop, Singapore could surely benefit from additional pipeline imports from
Indonesia, especially if Malaysia focuses more on meeting its own domestic needs.
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© 2012 IHS

Kalimantan is expected to emerge as the main region of gas supply in Indonesia. The large
potential of unconventional gas in Kalimantan and its proximity to the export markets of
Singapore (and potentially Malaysia) mean that this region will be essential for exports; and
it will also be large source of domestic supply, particularly with the likely construction of
a pipeline connection to Java.
As a result of the growing gap between flat (and eventually declining) conventional supply
and growing domestic demand, a rising share of domestic gas supply will need to be sourced
from diversion of LNG volumes that had previously been dedicated to export, or else LNG
imports from foreign sources. Declining output in Sumatra will result in declining deliveries
to Java, which itself is suffering from declining gas production. For these reasons, absent
unconventional gas, IHS CERA would expect to see steadily declining availability of LNG
for the export market, with more than half of the Indonesian LNG production diverted into
the domestic market by 2020, as shown in Figure III-15.
The construction of a pipeline connecting East Kalimantan with Java would support additions
to production in Kalimantan while also making more LNG available for export. But the
diversion of LNG for domestic use looks set to continue until such time as a significant
volume of unconventional production comes online (see Figure III-16).

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Building the potential productive capacity from unconventional gas into Indonesia’s overall
supply/demand balance results in a transformative impact starting after 2020, and mainly after
2030, as illustrated in Figure III-16. Coupled with the addition of new pipeline infrastructure
(particularly from Kalimantan to Java, as already noted), and also with a recovery of gas
supply from Sumatra to Java, significantly more LNG production would be freed up for
export. And over time, assuming that unconventional gas supply materializes as well, as
depicted by the IHS CERA planning case, Indonesia would have enough productive capacity
to meet growing domestic demand while also fully utilizing LNG liquefaction capacity for
exports (see Figure III-17).
Examining the supply/demand balances for various regions in further detail shows the growing
disconnect between supply and demand at the regional level. Java, currently a net importer of
gas, will need additional supply over time, even with the addition of unconventional supply
(see Figure III-17). Java’s gas demand is expected to stay on a strong growth trajectory as
conventional supply declines steadily over the course of the current decade. At the beginning
of the next decade we project some additional conventional production coming online, mainly
in East Java (including some associated gas), but this will not change the long-term trend
of growing requirement for supply from other regions.
IHS CERA’s assessment in Phases I and II suggests that the contributions from Java’s
unconventional gas resources are likely to be modest and therefore are not expected to have
a major impact on Java’s basic supply/demand balance (see Figure III-18).
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Unconventional production potential is likely to have a much bigger impact on Sumatra,

which has traditionally been a net exporter of gas and which benefits from proximity and
infrastructure connections to the large markets of West Java and Singapore (see Figure III-
18). Conventional gas production in Sumatra is on course to decline from current levels of
more than 30 Bcm per year to less than 20 Bcm annually by 2020 and onward toward 10
Bcm per year by 2030. This decline means that, absent unconventional gas, the pipeline
connections between Sumatra and Java will become underutilized, while extensions of the
export contract with Singapore will become impossible post-2020 as dedicated reserves run
out.
Fortunately, Sumatra has some strong shale gas prospects in the southern part of the island
that are very well placed to connect into the existing pipeline infrastructure in both directions.
This shale production could be immediately monetized with sales into domestic markets as
well as extended exports to Singapore.
LNG will continue to play a significant part in the domestic supply of natural gas to Indonesia.
Figure III-19 illustrates the outlook for liquefaction base-load capacity, LNG production, and
firmly contracted exports (assuming no contract renewals). Firm export commitments act as
a constraint on the diversion of LNG to the domestic market in the short term; therefore
Indonesia will require some imports of LNG from outside sources for the next few years.
However, these constraints on diversion of LNG to the domestic market begin to recede by
2015 and beyond as export contracts expire.

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© 2012 IHS

From 2015 onward for seven or eight years, even if new pipeline infrastructure is built to
bring gas from Kalimantan to Java, significant diversions of LNG will be needed to meet
Java’s supply needs, pulling LNG export levels downward. However, if unconventional gas
ramps up as expected in IHS CERA’s Low Case (reference) scenario after 2025, increasingly
rapid growth in unconventional gas productive capacity would generate an impressive supply
surplus for Indonesia as a whole. Even with all LNG export capacity fully utilized for
exports, new supply available for export markets would reach a level of 30 to 40 Bcm (20
to 25 million metric tons [mt] of LNG) per year by 2030 in our planning case.
Most of this new supply will come from Kalimantan, which is expected to be Indonesia’s main
region of gas production growth for the next decade and beyond (see Figure III-20). Regional
demand will show robust growth, but from a very low base, while production continues to
grow—from conventional sources before 2020 and increasingly from unconventional sources
after 2020. At present most gas produced in Kalimantan is exported through the Bontang
LNG facility, which remains the only export outlet for now. New pipelines to Java are the
obvious next step as new offshore production from the Kutei Basin comes online in the
next few years; such new pipeline systems would also be a logical outlet for some share
of unconventional production.
The outlook for Indonesia’s overall gas supply/demand balance as it develops through 2025
and 2035 is shown in Figures III-21 to III-23.

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(billion cubic meters)

Source: IHS CERA.

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(billion cubic meters)

Source: IHS CERA.

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KEY INSIGHTS: INFRASTRUCTURE DEVELOPMENT

The current state of Indonesia’s gas transmission and distribution infrastructure acts as a
constraint to further successful development of the domestic gas industry. Among the key
limitations imposed by the infrastructure are
• Lack of integrated approach. The country’s pipeline network has been developed
mostly on a project-by-project basis, resulting in a suboptimal pipeline configuration
to service the overall distribution of resources.
• Limited interisland connections. At present, the transmission link between Indonesian

islands has been limited to a single link between Southern Sumatra and Western Java.
• Limited distribution grid. Gas distribution is limited to nine cities in Central and
Southern Sumatra along with West Java and East Java, which are covered by PGN
through three service areas.
Ongoing gas demand growth and general economic growth mean that there is an urgent
requirement to connect additional customers to the gas grid by 2015 and beyond. Figures
III-24 and III-25 show the projects that must be completed by 2015 and 2020 to meet this
requirement, particularly taking into account the decline already under way in Sumatran
conventional gas production.
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Current Pipeline Developments

The current pipeline development plan includes the construction of three crucial pipelines
linking Kalimantan to Central Java and then extending to East and West Java (see Table III-1).
Although contracts for these projects were awarded in 2006, their implementation has been
delayed until gas supply can be firmed up and lead to robust gas sales and transportation
agreements. Smaller pipelines have been planned on an individual project basis.
LNG Import Terminal Development

Development of regasification facilities for LNG import has proceeded somewhat more
smoothly than pipeline projects have in recent years. Three floating storage and regasification
units are planned for completion in 2013, two to be located off the coast of Java and one in
North Sumatra (see Table III-2). Additional regas capacity will be required between 2015 and
2020 on Java, with the total Javanese regas requirement reaching 20 mt per year by 2020
if no pipeline connection from Kalimantan materializes. Meanwhile the Arun liquefaction
facility in North Sumatra is expected to be converted for import use by 2014. PLN and
Pertamina are considering building up to eight “mini-LNG” regas terminals in Java and
Sumatra, and PGN has plans to do the same in more isolated parts of eastern Indonesia
such as Sulawesi and the Lesser Sunda Islands.
KEY INSIGHTS: COMPARISON OF SUPPLY COSTS

Of course, the ultimate potential of unconventional gas in Indonesia will ultimately be
determined not only by the scale of the resource but also by economic considerations—first
and foremost, supply costs. Here the overall picture appears positive for shale gas and rather
negative for CBM.
Table III-1
Key National Pipeline Projects
Major Projects Developer Length Details

Kalimantan-Semarang PT Bakrie Brothers 1,220 km 10 Bcm pipeline will become the
backbone of gas supply to Java from
Kalimantan
Gas supply from Total E&P and Chevron
Crucial for utilization of unconventional
gas from Kalimantan shale plays
Semarang-Gresik PT Pertagas 250 km 5 Bcm pipeline is expected to be
completed in 2013
Semarang-Cirebon PT Rekeyasa Industri 230 km Feasibility study conducted in 2008
Source: IHS CERA.
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Table III-2
Indonesia’s LNG Regasification Terminal Projects
Expected
Major Projects Developer Capacity COD
West Java JV of PT Pertamina & PT PGN 3 mt per year 2012
North Sumatra (Arun Conversion) PT Pertamina 1.5 mt per year 2013
South Sumatra PT PGN 1.8 mt per year 2013
Central Java1 PT Pertamina 3 mt per year after 2013
Source: IHS CERA.

1. Suspended at present.
As described in Phase II, our analysis suggests that shale gas plays in Indonesia will have
breakeven wellhead costs of supply of typically $4 to $6 per thousand cubic feet (Mcf). These
costs are highly competitive with other sources of gas, including indigenous conventional gas
production. At these wellhead prices, delivered prices into key domestic markets will also
be competitive. As a rule, the use of existing liquefaction facilities to deliver shale gas to
domestic markets in Indonesia will be economically more attractive than the alternative of
new pipeline construction, although obviously this would change over if shale gas production
grew to exceed spare liquefaction capacity.
CBM breakeven costs, however, were analyzed in Phase II to be generally in the range of
$11 to $12 per Mcf. This is out of line with current pricing in the domestic market. Some
CBM plays could be competitive with foreign-sourced LNG, which will come into play to
the extent that the scale of Indonesia’s requirement for LNG imports becomes substantial.
Figure III-26 shows the potential competitiveness of shale gas in the large West Javan
market, which includes Jakarta. Conventional onshore production in the proximate locations
of East Java, the Cepu Basin (East Central Java), or the Jambi Basin in South Sumatra (not
shown in Figure III-26) provides the lowest delivered cost into West Java—$4 to $4.50 per
Mcf—along with gas from the Tangguh LNG project on Papua. Shale gas is not likely to
be cost competitive with these sources.
However, a gradual decline in supply is expected from these proximate plays, while Tangguh
LNG has significant export commitments, not to mention the opportunity to achieve higher
netbacks in high-price export markets. If shale gas is compared on a delivered-cost basis
with other new sources of domestic supply—which generally require new liquefaction—its
competitive position looks strong. Delivered costs for shale plays range from about $6 per
Mcf (Java or South Sumatra Basin shale) to roughly $8.75 per Mcf (North Sumatra Basin
shale). At the low end of this range, shale gas would be cheaper than the Donggi-Senoro
LNG project, and even more expensive shale plays could prospectively be delivered to West
Java at a lower cost than Abadi LNG.
Chapter III III-23

© 2012 IHS


Range of

Current
Domestic
Gas Price
Agreements

Average

Asian
LNG
Delivered
Price
Outlook

Looking beyond competitiveness to current domestic pricing, we can see that shale gas
delivered costs fall mostly within the current $6 to $8 per million Btu (MMBtu) range
of negotiated domestic gas price agreements (with North Sumatra Basin shale as the only
exception). This comparison is not exact because distribution costs would need to be added
as well, but it is clear that shale gas has the potential to become a significant source of
domestic gas supply, given its potential competitiveness with new (offshore) conventional
as well as with LNG delivered from new liquefaction projects.
The picture is more negative for CBM, which appears to be uncompetitive for the domestic
market owing to high production costs. Still, less costly CBM (for instance, in Sumatra)
would be competitive against assumed prices for foreign sourced LNG.
III-24 Chapter III

© 2012 IHS
This picture does not change significantly by moving the delivery point from West Java to
Central Java (see Figure III-27). The key difference is that delivered costs from Kalimantan—
for either offshore gas or shale gas—are lower on the assumption that they will use a new
pipeline connection from Kalimantan to Semarang. For delivery of Kalimantan shale gas
to Central Java, pipeline transportation would be clearly superior to using the existing
liquefaction facility at Bontang, even if pipeline costs were relatively high. A pipeline link
would also have the benefit of freeing up capacity at Bontang for LNG exports to higher-
price export markets.
Moving north and west to North Sumatra, the cost curve for delivered gas supply looks very
different (see Figure III-28). North Sumatra shale gas suddenly becomes very competitive,
unsurprisingly, at a delivered cost of about $6 per Mcf. With that exception, the advantage

Chapter III III-25

© 2012 IHS


shifts toward delivery of domestic LNG as opposed to building new pipeline links, particularly
from Kalimantan—although a scenario is possible in which a pipeline from Kalimantan
would make economic sense in any case by virtue of its freeing up liquefaction capacity
for export LNG to higher-price markets.
When considering possible markets for North Sumatran shale gas, investment into new
pipeline capacity for the export of gas into the oil-linked Singaporean gas market, and
perhaps for the Malaysian market as well, could be contemplated.
Thus far this analysis has focused on the relative cost of supply from different sources into
the main Indonesian demand centers. However, given current domestic price levels, the
highest netbacks for new shale gas in Indonesia would come from export markets supplied
with LNG delivered through existing liquefaction facilities. This option is particularly salient
III-26 Chapter III

© 2012 IHS
for Kalimantan shale gas given the significant liquefaction capacity available at the Bontang
LNG facility, which currently has spare capacity and which will thus be able to absorb initial
growth in Kalimantan production (shale or offshore conventional). Export of LNG through
Bontang would result in wellhead netbacks approximately $3 to $6 per MMBtu higher than
what could be achieved in the domestic market, assuming current domestic pricing (and
using IHS CERA’s planning case scenario for Asian LNG pricing).
Looking ahead to the point at which new liquefaction would be required to allow for
growth in LNG exports, the higher costs implied by the requirement for new liquefaction
capacity lead to lower export netbacks. Indeed, at current domestic prices, the wellhead
netback for exported LNG (using new facilities) would be just slightly higher than a netback
for domestic sales. Thus a slight increase in domestic prices would make gas producers
indifferent between the domestic and export markets, to the extent they could not gain
access to existing liquefaction.
Figure III-29, which shows the citygate prices in Central Java that would be required to
render suppliers indifferent between the domestic market and export markets, highlights
this picture.

Chapter III III-27

© 2012 IHS

KEY INSIGHTS: UNCONVENTIONAL GAS FOR LNG EXPORTS

As the previous analysis has made clear, one key feature of Indonesia as a potential location
for unconventional gas production is the presence of a growing and potentially profitable
domestic gas market. At the same time, of course, Indonesia is a major exporter of LNG, with
significant LNG export infrastructure and prospectively declining conventional production.
This section explores the market for incremental LNG exports from Indonesia as well as
the cost competitiveness in the Asian market of LNG produced from Indonesian shale gas
and CBM.
Outlook for the Asian LNG Market

IHS CERA expects the gap between firm, contracted LNG supply and LNG demand in the
Pacific Basin—which is already substantial—to widen further over time (see Figure III-30).
Demand for LNG is expected to remain on its currently strong growth trajectory, while on the
supply side we will see (and have already seen) significant expirations of long-term supply
contracts from traditional LNG producing countries where conventional gas production is
declining or soon to decline, including Indonesia (as previously discussed) and Malaysia.

(Pacific)

Source: IHS CERA.

20307-120
III-28 Chapter III

© 2012 IHS
Demand
The aggressive growth in Asian LNG demand will come from a broad range of markets across
Asia (see Figure III-31). China is of course a major driver of demand growth, although it
has already locked in firm supply for the period through 2020, after which point it represents
major upside potential for incremental LNG sales. India will emerge over the next 5 to 10
years as the largest area of growth in uncontracted and flexible supply, as demand shows
sharp growth while domestic gas production continues to disappoint. Further growth in South
and Southeast Asia will come from a number of smaller LNG markets, including Thailand,
the Philippines, Vietnam, Bangladesh, and Pakistan.
Farther north, consistent but moderate demand growth is expected in South Korea and Taiwan;
but Japan is a major source of uncertainty for the LNG market, as a result of the ongoing
debate about the future of nuclear power in the country. Our planning case outlook is for a
gradual and partial return to nuclear generation beginning this year, in which nuclear power
generation never returns to pre-Fukushima levels but does retake a substantial share of the
Japanese power generation market. However, it remains possible that Japan will decide to
phase out nuclear generation, in which case the LNG demand outlook will be notably higher,
with annual demand growing toward 100 mt (140 Bcm) by 2017.
The main source of downside risk for LNG demand in Asia would clearly be the spread of
the unconventional gas revolution into the region, with China as the most obvious locus of
a shale gas and CBM boom (for reasons of both geology and policy) but with India and
a few other areas also holding considerable potential. Chinese gas demand is expected to

Chapter III III-29

© 2012 IHS

grow fast enough to accommodate significant growth in domestic production along with
strong growth in imports, but a significant reduction in China’s import requirement would
at the very least have a negative impact on regional LNG pricing.
Supply
In the short term, the Asian LNG market will remain tight and supply constrained. Only
four new liquefaction projects are scheduled to come online by 2015 anywhere in the world,
and of these only one (the Australian project Pluto LNG) is in or near Asia.
However, in 2016–20 there will be increasingly strong competition for new long-term
buyers, driven largely by the emergence of Australia as a major LNG supplier. Some 61
mt of LNG capacity is currently under construction in Australia, leading the way for the
more than 50 mt of projects (including some non-Australian liquefaction) that are looking
for a final investment decision (FID) within the next 12 months.
This does not mean, however, that there will be no incremental market opportunity for
Indonesian LNG before 2020, should the supply be available. Even with the ramp-up of
Qatari contracts over the past three years along with already-contracted post-2015 supply
from Australia, there remains a significant supply gap of 50 to 100 mt (70 to 140 Bcm)
per year between now and 2020.
IHS CERA expects an even more sizeable supply/demand gap to open up again after 2020.
This could coincide with the emergence of sizeable volumes of unconventional gas production
in Indonesia, making the placement of incremental Indonesian LNG through new long-term
contracts much easier than if the production were to emerge before 2020.
Figure III-32 shows IHS CERA’s planning case LNG supply outlook for Asia, including
uncontracted and contracted volumes (but excluding project for which FIDs have not yet
been made).
Competitive Position of Indonesian Unconventional LNG

The key factor determining the competitiveness of Indonesian LNG from unconventional
gas will be whether it uses existing liquefaction—as it is likely to do, initially—or whether
it requires the construction of new, dedicated liquefaction. In the former case, Indonesian
unconventional LNG will be very competitive in the Asian market; in the latter case, this
gas will be toward the higher end of the cost curve for regional LNG supply.
The opportunity to export unconventional gas as LNG resides mainly in the underutilized
Bontang liquefaction facility in East Kalimantan. Based on IHS CERA’s estimates of
production cost for Kalimantan shale gas (plus transmission costs), the delivered cost of this
gas feeding into the Bontang plant would be slightly higher than $5 per MMBtu; adding
in the costs of liquefaction and LNG shipping, this translates to a delivered cost to South
Korea of approximately $8 per MMBtu. At this cost level, Indonesian LNG from shale gas
is cheaper than all alternative sources of LNG except for brownfield Middle Eastern sources
(i.e., Qatar); supply from the Tangguh expansion project; and Bontang LNG exports based
III-30 Chapter III

© 2012 IHS

on conventional gas supply (see Figure III-33). In any case the delivered cost to any Asian
market would be significantly the long-term contract LNG price range of $10 to $14 per
MMBtu projected by IHS CERA for 2016–35.
This outlook is extremely positive for the prospects of Kalimantan shale gas, particularly
given that Qatar is exceedingly unlikely either to compete on price or to flood the Asian
market with gas such that other suppliers are blocked.
However, to the extent that investment in new liquefaction will be needed to monetize
Indonesian shale gas, it will face a more difficult competitive environment. As Figure III-
34 shows, shale gas exports from an expansion facility at Bontang would be delivered to
market at a cost level similar to that for LNG from the US Gulf Coast or from East Africa.
Nevertheless, Indonesian LNG produced on this basis would be priced at the lowest end of
the long-term price range expected by IHS CERA. Indonesian LNG produced from CBM,
however, would appear to have no chance of being exported economically.
Chapter III III-31

© 2012 IHS


LIQUEFACTION PROJECTS

Asia LNG
Oil-Indexed
Contract

Range

III-32 Chapter III

© 2012 IHS

Chapter III III-33

© 2012 IHS
APPENDIX A
Production Potential: Methodology
IHS CERA takes a top-down approach in our unconventional gas studies to identify, quantify,
and then assess a region’s or country’s production potential. This analysis includes assessing
risks at the macro and industry levels initially and then drilling down into basin- and play-
level risks. We assess the unit costs for each play with reference to a breakeven gas price,
taking into account probable resources along with the economics of development and factoring
in well-grounded assumptions about productive capacity, discount rates, royalties, corporate
tax, operational expenditure, and capital expenditure (capex). Care must be used in reviewing
the results of this part of the study. One important issue to note is that we use average
play values for productivity, cost, and other factors in our modeling exercise; however, the
properties of large plays may vary widely over the play area. A second issue is, of course,
that some plays will eventually produce commercial quantities of gas, and others will not.
Play-Specific Factors
We consider a wide range of factors in assessing the likely production profiles of specific
unconventional gas plays under various scenarios. These factors are judged to have varying
importance and are weighed accordingly.
The two first-order factors considered for each play are the plateau probable production
and the time to first production. The plateau probable production figures reflect geological
potential, resource risk (itself a function of the geological characteristics of the play),
access constraints, and reservoir recovery—all of which are analyzed in the context of
the performance of analogue plays in the United States. Time to first production reflects
development pace and development risks, the breakeven cost of gas supply, production
potential, and an assessment of aboveground risks (see Figure A-1).
Another aspect of development pace—the speed of ramp-up after first production—is

considered as a second-order factor and is analyzed based on North American gas analogues.
The rate of decline of each play is a function of the proportion of the probable net recoverable
resource volume that remains to be produced when the play comes off plateau.
Plateau Probable Production: The Key Parameter

Risked production profiles for each play are built around an estimate for plateau probable
production. The approach to estimating the other components of the profiles, including time
to first production, ramp-up, and decline, is described above. For individual results by play,
please refer to the Excel spreadsheets on the Multiclient Study website.*
In Phase I of the analysis a gross gas-in-place (GIP) estimate for shale gas and coalbed
methane (CBM) plays is made. The first step in converting in-place volumes to recoverable
volumes is to screen them for access limitations, as shown in the hypothetical example in
**See Unconventional Frontier Indonesia – Productive Capacity Outlook (Appendix A) data and interpretation file
under Additional Research on the Unconventional Frontier—Indonesia website.
Appendix A A-1
© 2012 IHS


Ramp-Up Decline
Time to First
Production

1ST Order Risks

2ND Order Risks

3RD Order Risks

Figure A-2. The range of recovery factors for unconventional gas plays is typically estimated
to fall between 10% and 30% for shale gas and 40% to 60% for CBM. On this basis we
assume that the net recoverable resource for each play amounts to 20% of the net GIP
volume for shale plays and 50% of net GIP for CBM plays.
At this stage, the analysis considers a range of possibilities weighted, in the first instance,
according to geological potential as determined in Phase I of this study. The framework
for these probable net recoverable resource cases is set out in Table A-1. Probable net
recoverable gas resources (often referred to as a “risked technically recoverable volume” for
each play) are determined by applying a geological potential to each play—high, medium,
or low, each having its own distribution of six risk factors.
An estimate of plateau probable production for each play is calculated using benchmarks
from the North American Barnett Shale and the San Juan CBM play as appropriate. These
benchmarks were created from the IHS CERA Multiclient Studies Fueling North America’s
Energy Future and Cream of the Crop: Performance Analytics for North American Gas
A-2 Appendix A
© 2012 IHS

Table A-1
For Risked Resource Estimate: Percentage of Net Recoverable Resource Assumed for
Category of Play
High-Potential Medium-Potential Low-Potential Used for

Plays Plays Plays Which Scenario?
Risked Low 5 0 0
Risked Medium 10 5 0 Low Case
Risked High 15 10 5
Forecast Medium 20 10 0 Medium Case
Forecast High 30 15 5 High Case
Potential 100 100 100
Source: IHS CERA.
Appendix A A-3
© 2012 IHS

Resource Plays, which examined 15 unconventional gas plays in North America and assessed
the net recoverable resource of each under various scenarios for factors such as drilling
density and commerciality.
Factoring in the plateau annual production for the Barnett Shale provides a ratio of plateau
production to commercial resource, which is then used to calibrate the plateau productive
capacities of shale gas plays based on their risked technically recoverable resource estimates.
The same is done for CBM, using a similar process based on the San Juan play.
For example, the Barnett Shale analogue gives a plateau productive capacity of 4.9 Bcf per
day from the 28 Tcf that has been commercialized out of a total technically recoverable
resource of 58.6 Tcf. The analogue ramp-up rate is 0.5 Bcf per day per year for 9.8 years.
The San Juan analogue for CBM uses a commercial resource of 35.6 Tcf from a total
technically recoverable resource of 74.4 Tcf, with a plateau production rate of 2.75 Bcf per
day and a ramp-up rate of 0.25 Bcf per day per year for 11 years.
Applying these risk factors, there are six possible outcomes for plateau probable production
for each play: risked low, risked medium, risked high, forecast medium, forecast high, and
potential. The risked cases reflect traditional exploration and production analyses whereby
potential is translated to resource at around a 10% conversion. The risked-medium case can
be considered a conservative estimate suitable for raising debt financing. It reflects the 10%
conversion factor on high-potential plays, those likely to be considered for investment first.
Inferior geological potential reduces the percentage applied to the play; the risked-medium
case uses a 5% factor for medium geological potential plays, and low geological potential
plays are eliminated. Of the six possible outcomes, forecast high is used as a resource base
for our High Case scenario, forecast medium as the Medium Case scenario, and risked
medium as the Low Case scenario.
The forecast cases reflect riskier equity-type assessments of ultimate potential, ones that
can be used by companies with equity finance that are planning their investments and cash
flows. The full potential of each play is also included to enable comparisons with North
America, where various industry bodies have deemed potential a suitable measure of the
scale of possible unconventional gas supply.
Productivity Potential
To estimate potential costs of production, we make judgments about productivity potential,
recognizing this as a critical uncertainty, first of all by assessing productivity potential at
the play level. This assessment, along with the analysis of unit costs, is used to inform our
assumption on time-to-first production. Each play is assigned a productivity potential through
a review of pay thickness, gas content, shale brittleness, and overpressure. Overpressure is
calculated by looking at the difference in the absolute pressure and the hydrostatic pressure
of water at the reservoir depth; in this respect, depth and pressure drive the result. The
specifics are illustrated by region for the high-potential and medium-potential plays in tables
that summarize the production potential, maturity window, and geological potential of each
play (see Appendix C).
A-4 Appendix A
© 2012 IHS
All these calculations reflect that at present, with no appraisal wells or production histories,
these plays are far from being derisked. Given that individual well productivity is so uncertain
at this stage, the analysis focuses primarily on potential productive capacity at a play level.
Time to First Production

Time to first production is calculated by first assessing play development risk. We assign
a time for first production—defined as early, on time, or late—for each play based on
the geological characteristics of the play, access constraints, reservoir recovery, geological
potential, and the results from analogues in the United States (see Figure A-3).
The analysis starts with an identification of the key risks for all plays for which the plateau
probable production is greater than 5.2 billion cubic meters (Bcm) per year (0.5 Bcf per
day) under the risked-medium assumptions detailed in Table A-1. Key outcomes for each
play-specific risk are described, and a number of development themes are identified to create
play-specific development scenarios.

Appendix A A-5
© 2012 IHS

Second- and Third-Order Risks: Ramp-Up and Decline

The second- and third-order risks—ramp-up and decline—are then considered. The ramp-up
rate for the development is based on analogues:
• Shale gas developments are based on the Barnett Shale in the United States and
thus assume that ramp-up proceeds by adding productive capacity at a fraction of the
Barnett Shale’s 5.2 Bcm per year (0.50 Bcf per day). That fraction is essentially based
on the ratio of a play’s probable net recoverable resource to that of the Barnett Shale.
Irrespective of the plateau probable production rate, the ramp-up period is 9.8 years.
• CBM developments are based on the San Juan analogue, thus assuming ramp-up
featuring productive capacity growth of a similarly determined fraction of the San Juan’s
2.6 Bcm per year (0.25 Bcf per day). CBM plays have a ramp-up period of 11 years.
The production profile for each play is generated beginning at the “time to first production”
and then increasing output at the play-specific ramp-up rate until the plateau probable
production level is attained. The profile is reduced when the produced gas volume reaches
65% of the probable net recoverable resource for shale gas plays and 86% for CBM plays.
Both of these end-of-plateau figures are model based, and the ensuing play decline rate is
a function of the predetermined production rate of the remaining resources in the wells that
have been drilled.
Activity: Wells Drilled, Rig Count, and Capex

The assessment of wells drilled is based on a model in which wells of a defined productivity
profile are drilled as required to generate the productive capacity outlook of each play. Wells
are assumed to be drilled in the year prior to their required production. Each well is then
assumed to produce for 20 years and to have a defined expected ultimate recovery. Wells
cease to be added when the sum of their 20-year production profiles reaches the probable
net recoverable resource volume for the play.
A rig count estimate is made by dividing the number of wells by the number of days to drill
and complete in each play. An assessment of the time to drill and complete wells is made
in the cost section of the study for each play. This assessment is based on a situation in
which operators have completed the learning curve, and thus the time to drill and complete
used is similar to that for North America. Deviations from this comparison are likely, and
this number may be slightly optimistic.
The capex number is calculated by multiplying the number of wells by estimated capex
per individual well—a figure derived from our detailed assessment of comparative costs
for unconventional plays in the region under study relative to North American plays. This
reflects capex at constant 2011 prices.
A-6 Appendix A
© 2012 IHS
APPENDIX B
WELL COSTS FOR INDONESIAN UNCONVENTIONAL GAS
DEVELOPMENT
This appendix shows how well drilling and completion costs for Indonesian shale gas and
coalbed methane (CBM) plays were assessed on the basis of cost data from North American
unconventional gas drilling activities. The analysis uses the actual costs for a set of four
types of unconventional gas wells in North America. Generalized cost differences between
North America and Indonesia are then factored in. As a final step, cost variations based on
the geological characteristics of 45 specific Indonesian plays are taken into account. Various
parts of the analysis rely on parameters and data from QUE$TOR, the IHS proprietary tool
for capital cost estimation.
Table B-1 shows the results of this analysis in the form of hypothetical costs per well,
incorporating capital costs as well as fixed and variable operating costs, for 31 shale gas plays
and 14 CBM plays grouped into seven Indonesian regions. The costs of wells for different
types of North American plays (described in more detail below) are shown for comparison.
It should be noted that the North American costs on which these figures are ultimately
based reflect data from established plays and operators. Costs for shale gas wells in the
early stages of development in Indonesia could be as much as double the figures shown
here—but would be expected to come down rapidly over time as operators gained more
experience with their plays. This same learning curve effect does not apply to CBM wells,
however, so these costs will remain more stable.
Table B-1
Costs of Unconventional Gas Wells by Region and Type

(million US dollars)
Well Type
CBM Quad-
Region Shallow Shale Deep Shale CBM Lateral
North Sumatra 5.72 — — —
South Sumatra 4.96 — 1.65 3.83
Central Sumatra 4.77 — 1.50 3.64
West Sumatra — — 1.63 3.80
Kalimantan 5.23 — 1.63 3.81
Java 5.79 — 1.83 4.33
Papua 6.04 — — —
North American–Type Wells

Marcellus 4.58 — — —
Haynesville — 8.95 — —
San Juan-Fruitland — — 2.08 —
Arkoma-Hartshorne — — — 2.61
Source: IHS CERA.
Appendix B B-1
© 2012 IHS

Development Well Cost Modeling Assumptions
Several assumptions were made to estimate the costs for potential Indonesian wells, adapting
the same methodology used for European wells in the IHS CERA Multiclient Study Breaking with
Convention: Prospects for European Unconventional Gas. First, all shale gas wells are considered
horizontal, while all vertical CBM wells are directional. In addition, a second configuration
is considered in which CBM wells are assumed to have a quad-lateral configuration, with a
combination of a cavity well and four horizontal wells on a single pad location.
As a general assumption, the calculations were conducted on the basis of four wells per pad,
irrespective of the well type. Quad-lateral horizontal wells are slightly different, and it was
assumed that each pad contains four horizontal wells and one cavity well.
For shale gas wells, it was assumed that there is one lateral per horizontal well. The length of
the lateral was assumed to be 4,600 feet (ft) (1,400 meters [m]). CBM vertical wells have no
laterals. For quad-lateral horizontal wells the length of the lateral was assumed to be 4,500 ft
(with a combined length of 28,700 ft [8,750 m]).
Hydraulic fracturing costs were calculated based on the amount of proppant used. An “average”
hypothetical fracturing job for each play was assumed, and then costs were adjusted for depth.
The modeling accounts for the cost of water based on the water consumption for drilling and
fracturing operations. A pressure multiplier is applied to account for additional horsepower
required in overpressured plays. Each fracturing stage was assumed to be 350 ft for a horizontal
well and 250 ft for vertical or directional wells.
The drilling and completion costs exclude the cost of surface facilities (i.e., gathering systems,
water supply, and treatment). The cost factors identified for each well are
• Site preparation
• Direct drilling contractor expense (rig cost)
• Drilling-related services and fuel
• Consumables
• Completion services
• Tangibles and surface equipment
• Tangibles and subsurface equipment
• Freight/haulage
• Engineering/project management
• Miscellaneous
• Water supply and treatment
These costs do not include the cost of certain surface facilities, including gathering and water
treatment systems, which are included in the model as fixed and variable operating expenditures.
B-2 Appendix B
© 2012 IHS
TYPES OF WELLS
The analysis begins with an assessment of typical costs for four types of unconventional
gas wells in North America:
• A Haynesville-type well, representing deep, horizontal shale gas wells requiring

multistage fracturing techniques
• A Marcellus-type well, representing shallow or medium-depth horizontal shale gas

wells requiring multistage fracturing techniques
• A San Juan-type well, representing vertical CBM wells
• An Arkoma well, representing quad-lateral CBM wells (also called a pinnate well or a
fishbone well, consists of a horizontal well with a series of multilateral well segments
extending from it; a collection of these fishbone wells then intersects a cavity well
through which gas rises to the surface)
DEVELOPMENT WELL COST MODELING ASSUMPTIONS

These represent the four major well categories used in unconventional gas development,
and taken together they form a solid basis for benchmarking costs across the range of
unconventional gas developments in different locations. The model developed for the IHS
CERA Multiclient Study Cream of the Crop: Performance Analytics for North America Gas
Resource Plays in third quarter 2009 was used as a basis; then the cost drivers for North
America were adjusted up or down according to market movements from third quarter 2009
to third quarter 2011, based on factors derived from QUE$TOR. Subsequently adjustment
cost factors derived from QUE$TOR were applied to calculate the corresponding cost for
Indonesia. All technical parameters were kept constant among the type wells; only the
location in which these wells were drilled and completed was changed.
The costs for drilling and completing these well types in North America came from actual
cost data as reflected in QUE$TOR, adjusted to reflect prevailing costs in the drilling market
for third quarter 2011 and broken down into their components:
• Tangible costs: surface and subsurface equipment
• Intangible costs: site preparation, direct rig contractor costs, drilling-related services
and fluids, consumables, completion services, freight/haulage, engineering and project
management, some water supply and treatment costs, and miscellaneous
Table B-2 shows the cost (third quarter 2011) for drilling by well type in North America.
The two most important cost drivers for shale gas and CBM wells are the rig cost, which
accounts for 15% to 27% of the total costs, and the drilling services, which account for
17% to 54%. For deep wells, completion also emerges as a major cost. For CBM vertical
wells, surface tangible costs are a much larger component of total cost than for shale wells.
Appendix B B-3
© 2012 IHS

Table B-2
Cost Breakdowns for Unconventional Gas Wells in North America

(million US dollars)
Quad-
Shallow Shale Deep Shale Vertical CBM Lateral CBM
Cost 4.58 million 8.95 million 2.08 million 2.61 million
Tangible 13.2% 15.8% 32.2% 11.9%

Of which:
Subsurface 8.5% 8.4% 6.2% 5.5%
Surface 4.6% 7.3% 26.0% 6.4%
Intangible 86.8% 84.2% 67.8% 88.1%

Of which:
Site preparation 1.1% 0.6% 2.5% 2.0%
Rig cost 26.8% 24.5% 20.6% 14.8%
Drilling services 31.0% 16.6% 18.9% 53.6%
Completion 10.7% 16.8% 3.5% 0.6%
Consumables 6.9% 17.4% 4.1% 3.8%
Freight 2.3% 3.1% 2.7% 1.3%
Engineering and project
management 2.6% 1.3% 5.7% 4.6%
Miscellaneous 2.0% 2.2% 2.6% 1.7%
Water supply and treatment 3.3% 1.7% 7.2% 5.7%
Source: IHS CERA.
REGIONAL COST DIFFERENCES DUE TO EQUIPMENT, LABOR, AND

SERVICES MARKETS
Before estimating costs for Indonesia’s shale and CBM plays, the generalized differences
in the cost of equipment, labor, and services to drill a well between North America and
Indonesia were analyzed. IHS tracks these prices comprehensively as part of the QUE$TOR
suite.
For this step, the analysis compared the various cost parameters as if the North American
wells were being drilled in Indonesia, also in third quarter 2011, with all technical parameters
held constant.
Figure B-1 shows the results. Costs of drilling and completing the North American–type
wells in Indonesia range between 2.1% lower to 0.6% higher than in North America. Closer
inspection of costs shows that the major reason for the differences is higher rig costs in
Indonesia.
Figure B-2 shows the effect of Indonesian cost differentials on actual well costs.
B-4 Appendix B
© 2012 IHS

Appendix B B-5
© 2012 IHS

The key conclusion here is that the generalized cost differentials between North America
and Indonesia do not at this point look to be a major driver for different unconventional gas
economics between the two regions. That being said, this data is based on today’s market
conditions, and there are two factors to consider going forward:
• Relative costs between Indonesia and North America are always changing and
will continue to change. An unconventional gas boom in Indonesia is possible; if it
is to occur, it will possibly have the effect of pushing this differential lower, at least
in the early stages.
• These cost comparisons depend to some extent on the Indonesian rupiah versus
the US dollar exchange rate. The figures shown here were based on third quarter
2011 numbers. However, the rupiah exchange rate is likely to remain stable for the
near term, and analysis by IHS CERA’s sister company IHS Global Insight indicates
that the rupiah will gradually depreciate over the medium term, which would push
down Indonesian costs relative to US costs. An unexpectedly weak dollar would have
the opposite effect.
These cost differentials, however, are based on drilling theoretical wells in Indonesia that
have exactly the same characteristics as the typical North American unconventional wells. In
fact, the more important source of cost differentials between North America and Indonesia
will be the productivity of unconventional gas formations in Indonesia, as discussed above.
INDONESIAN SHALE GAS DEVELOPMENT COSTS AT THE PLAY LEVEL

The next step in the analysis took into account the particular characteristics of specific
Indonesian shale and CBM plays, while making certain assumptions about drilling parameters.
It was generally assumed that four wells were drilled per pad, irrespective of the type of
the well. All shale gas wells were assumed to be horizontal, with one 1,400 m (4,600 ft)
lateral per horizontal well. All vertical CBM wells were assumed to be directional, and the
combined length of laterals for each quad-lateral well was assumed at 8,750 m (28,700 ft).
Hydraulic fracturing costs were generated based on a hypothetical average fracturing

job for each play, with costs adjusted for depth. The model accounts for the water costs
based on the water consumption for drilling operations as well as fracturing operations. A
pressure multiplier has been used to factor in the costs of additional horsepower required
for overpressured plays. Each fracturing stage was assumed to be at a frequency of 105 m
for a horizontal well and 75 m for vertical or directional wells.
With regard to shale gas, this analysis concluded that the cost of drilling and completing
wells in Indonesia is on average higher than North American benchmarks for shallow shale
gas plays. This is a result mainly of two factors: the depth of the wells (generally Indonesian
wells in the “shallow wells” category are deeper), and the different pressures that will be
encountered in the average Indonesian shale gas play. Note that none of the Indonesian shale
wells is categorized as a “deep well.” The correlations between costs on the one hand and
depth and pressure on the other are clearly shown in Figures B-3 and B-4.
B-6 Appendix B
© 2012 IHS

(million
dollars)

Source: IHS CERA.

20307-67

(million
dollars)

Source: IHS CERA.

20307-68
Appendix B B-7
© 2012 IHS

Figure B-5 shows the difference in costs for drilling and completing a well in the shallow
shale gas plays covered in the study—with “shallow” defined as depths of less than 3,000
m—as compared with the Marcellus benchmark (as adjusted for Indonesian market costs).
The majority of the 31 shale gas plays are on average 19% more expensive.

B-8 Appendix B
© 2012 IHS
For CBM plays, the costs for the 14 Indonesian plays under consideration compared very
differently with North American analogues depending on whether vertical or quad-lateral
wells are used. (All four plays were compared under both development models.) Using
vertical wells, costs are significantly cheaper than the San Juan benchmark, with all of the
Indonesian plays showing cost differences of just over 12% (see Figure B-6). Overall, using
vertical wells in Indonesia results in costs that are on average about 21% cheaper than the
North American analogue.
However, the picture is totally different with quad-lateral wells. In this case, costs for Indonesia
CBM plays are considerably higher than the North American benchmark, the Arkoma play:
at least 39% higher in all cases and roughly over 46% on average (see Figure B-7).
PREDICTING DEVELOPMENT WELL COSTS

As already noted, the main contributor to differential costs for unconventional gas development
in Indonesia compared with North America is not differences in the market prices of relevant
goods and services but rather the depth of the play. Other factors are more important in
North America than in Indonesia, where plays tend to be normally pressured or just slightly
overpressured. A regression on all the modeled well costs revealed that variation in depth

Appendix B B-9
© 2012 IHS


fully explained the cost of the wells without the need for an additional regression for variable
pressure (see Figures B-3 and B-4). It was not possible to correlate deep shale gas wells
as the data points are nonexistent.
These figures show a satisfactory correlation between well cost (in dollars) and depth (in
feet) for Indonesian shale gas wells (with total vertical depth [TVD] being equal to the
TVD of the well, as opposed to its measured depth):
Shallow shale gas cost = 455 x TVD + 3,000,000
Vertical CBM gas cost = 166 x TVD + 1,000,000
Quad-lateral CBM gas cost = 312 x TVD + 3,000,000
B-10 Appendix B
© 2012 IHS
Table C-1
Play Risk Characteristics and Potential by Region—

Sumatra: Shale Gas
Appendix C
Pay Gas Production Production Maturity Geological
Play Brittleness Thickness Content Overpressure Risk Potential Window Potential
North Sumatra
INDO_SG01_NSB Bampo Shale 2 5 2 5.0 3.5 high wet high
Play_Aceh, Sumatera Utara
INDO_SG02_NSB Peutu Shale 2 5 2 5.0 3.5 high wet medium
Play_Aceh, Sumatera Utara
INDO_SG03_NSB Lower Baong 2 5 2 4.0 3.5 high wet medium

Shale Play_Aceh, Sumatera
Utara
South Sumatra
INDO_SG04_SSB Talang Akar 3 5 2 3.0 3.3 high wet-dry high
Shale Play_Sumatra South,
Jambi
© 2012 IHS
INDO_SG05_SSB Gumai Shale 2 4 1 3.0 2.3 low wet medium
Play_Sumatra South, Jambi
APPENDIX C: SUPPLEMENTARY TABLES
INDO_SG06_SSB Air Benakat 2 4 2 3.0 2.7 medium wet medium

Shale Play_Sumatra South,
Jambi
INDO_SG07_CSB Brown Shale 2 5 2 2.5 3.0 high wet medium
Play_Sumatra South, Jambi
Central Sumatra
INDO_SG08_CSB Bangko Shale 2 4 1 2.5 2.3 low wet low
Play_Riau, North Utara
INDO_SG09_CSB Telisa Shale 2 5 1 2.5 2.7 medium wet low
Play_Riau, North Utara
Source: IHS CERA.
C-1
Table C-2
C-2
Sumatra: CBM
Coal Seam Gas Production Production Maturity Geological

Play Cleats Thickness Content Overpressure Risk Potential Window Potential
South Sumatra
INDO_CBM01_SSB Muara Enim 3 3 4 3.0 3.3 high near-dry high
CBM Play_Sumatra South,
Jambi
Central Sumatra
INDO_CBM03_CSB Korinci CBM 3 3 4 2.5 3.3 high near-dry medium
Play_Riau, West Sumatra, Jambi
West Sumatra
INDO_CBM02_Ombilin 4 2 4 3.0 3.3 high near-dry high
Sawahlunto CBM Play _Sumatra
Barat
© 2012 IHS
Source: IHS CERA.
Appendix C
Table C-3

Kalimantan: Shale Gas
Appendix C
INDO_SG10_Barito Tanjung 3 5 3 3.5 3.6 high wet-dry high
Shale Play_Kalimantan
(Tengah,Selatan,Timur)
INDO_SG11_Barito Berai 3 4 1 3.5 2.9 medium wet low
INDO_SG12_Kutei Eocene 3 5 1 3.5 3.1 high wet-dry medium
INDO_SG13_Kutei Oligocene 3 5 2 3.5 3.4 high wet-dry medium
Shale Play_Kalimantan Timur
INDO_SG14_Asem Eocene Shale 3 4 1 3.0 2.7 medium wet-dry low
Play_Kalimantan (Selatan,Timur)
© 2012 IHS
INDO_SG15_Asem Oligocene 3 4 1 3.0 2.7 medium wet-dry low
(Selatan,Timur)
INDO_SG16_Kutei Lower Miocene 2 4 2 3.5 2.9 medium wet medium
INDO_SG17_Kutei Balikpapan 2 5 2 3.5 3.1 high wet medium
INDO_SG18_Tarakan Sembakung 4 4 3 3.5 3.6 high dry high
INDO_SG19_Tarakan Naintupo 3 5 2 3.5 3.4 high wet-dry medium
INDO_SG20_Tarakan Meliat Shale 3 5 2 3.5 3.4 high wet medium
Play_Kalimantan Timur
Source: IHS CERA.
C-3
Table C-4
C-4
Kalimantan: CBM

INDO_CBM04_Barito Warukin 4 3 3 3.5 3.4 high near-dry high
CBM Play_Kalimantan
(Tengah,Selatan)
INDO_CBM05_Kutei Eocene CBM 4 2 4 3.5 3.4 high near-dry high
Play_Kalimantan (Tengah, Timur)
INDO_CBM06_Kutei Oligocene 4 2 4 3.5 3.4 high near-dry high
CBM Play_Kalimantan (Tengah,
Timur)
INDO_CBM07_Barito Tanjung 4 2 3 3.5 3.1 high near-dry high
CBM Play_Kalimantan
(Tengah,Selatan)
INDO_CBM08_Asem Eocene 4 2 3 3.0 3.0 high near-dry high
CBM Play_Kalimantan
© 2012 IHS
(Timur,Selatan)
INDO_CBM09_Kutei Lower 4 2 3 3.5 3.1 high near-dry high
Miocene CBM Play_Kalimantan
Timur
INDO_CBM10_Kutei Balikpapan 4 4 3 3.5 3.6 high near-dry high
CBM Play_Kalimantan Timur
INDO_CBM11_Asem Miocene 4 4 3 3.0 3.7 high near-dry high
CBM Play_Kalimantan
(Timur,Selatan)
INDO_CBM12_Tarakan Meliat 3 2 2 3.0 2.3 low near-dry medium
INDO_CBM13_Tarakan Tabul 3 2 2 3.0 2.3 low near-dry medium
Source: IHS CERA.
Appendix C
Table C-5

Java: Shale Gas
Appendix C
INDO_SG21_West Java 2 5 2 3.0 3.0 high wet medium
Jatibarang Shale Play_Jawa
Barat, Tengah
INDO_SG22_West Java Talang 2 5 2 3.0 3.0 high wet medium
Akar Shale Play_Jawa Barat
INDO_SG23_West Java Batu Raja 2 5 2 3.0 3.0 high wet low

Shale Play_Jawa Barat
INDO_SG24_West Java Upper 2 5 2 3.0 3.0 high wet low
Cibulakan Shale Play_Jawa
Barat
INDO_SG29_East Java Ngimbang 2 4 1 3.0 2.3 low wet low
Shale Play_Jawa Tengah, Timur
INDO_SG30_East Java Kujung 2 5 1 3.0 2.7 medium wet low
© 2012 IHS
INDO_SG31_East Java Tuban 2 4 1 3.0 2.3 low wet low
Source: IHS CERA.
C-5
Table C-6
C-6
Java: CBM

INDO_CBM14_West Java Talang 3 2 4 3.0 3.0 high near-dry medium
Akar CBM Play_Jawa Barat
Source: IHS CERA.
© 2012 IHS
Appendix C
Table C-7

Papua: Shale Gas
Appendix C
INDO_SG25_Papua Aifam Shale 4 5 3 3.0 4.0 very high wet-dry high
Play_West Papua
INDO_SG26_Papua Lower 4 3 3 3.0 3.3 high wet-dry high
Kembelangan Shale Play_West
Papua
INDO_SG27_Papua Klasafet 2 5 1 3.0 2.7 medium wet low

Shale North Play_West Papua
INDO_SG28_Papua Klasafet 2 5 2 3.0 3.0 high wet low
Shale South Play_West Papua
Source: IHS CERA.
© 2012 IHS
C-7
Table C-8
C-8
Papua: CBM

No CBM Play — — — — — — — —
Source: IHS CERA.
© 2012 IHS
Appendix C
APPENDIX D
INDONESIA UNCONVENTIONAL OIL AND GAS DEVELOPMENT:

REGULATORY DRIVERS AND CHALLENGES
INTRODUCTION
Indonesia has plentiful gas reserves, and the government clearly intends to encourage
development of unconventional resources. Although the country’s shale gas exploitation
lags behind coalbed methane (CBM), the government has stated its interest in developing
domestic shale gas reserves. In general, Indonesia’s regulatory environment provides good
support to foreign investment. However, the regulatory environment poses both opportunities
and challenges for investors (see the box “Regulatory Opportunities and Challenges for
Investors in Indonesian Unconventionals”). Investors face challenges particularly because of
the complexity and uncertainty around administrative processes and changing regulations.
Indonesia has a reputation for having numerous regulatory approvals and inconsistent,
slow regulatory decision making; delays are common. Many regulatory issues have still
to be streamlined or clarified in relation to some facets of unconventional gas production.
However, as noted in the Phase II chapter, a number of CBM production sharing contracts
(PSCs) have been signed, and exploration has commenced. The regulatory framework for
shale gas exploration is still being developed, but new regulations were issued in early 2012
for unconventional gas, including shale gas. On the positive side, the relative infancy and
evolving nature of the regulatory regime for unconventional resources provide opportunities
for stakeholders to influence policy.
GOVERNMENT POLICY/PUBLIC OPINION

The Indonesian government has stated its commitment to encouraging development of
unconventional gas as a major component of its long-term energy strategy.1 Further government
projections envisage that even by 2050 gas (from conventional and CBM and biomass) will
make up 19% of the mix.2
Indonesia’s diverse set of stakeholders in the development of unconventional resources

includes central and regional government agencies, foreign and domestic investors, and
environmental and other lobby groups. Pragmatic concerns about separatist tendencies in
some regions have compelled the government to grant a degree of regional autonomy which
can create extra bureaucracy for oil and gas investors and undermine regulatory clarity
Some responsibility for awarding permits for environment, water, and land use rest with
regional authorities. The extra layer of bureaucracy created by the involvement of both central
and local authorities creates some risk of delays to unconventional gas exploitation. This
1. Presidential Regulation No. 5/2006 on National Energy Policy.

2. Indonesia Government’s National Master Plan for Energy Related Infrastructure Development.
Appendix D D-1
© 2012 IHS

Regulatory Opportunities and Challenges for Investors in Indonesian Unconventionals
Opportunities
• Commitment to encouraging development of unconventional gas—gas is a major
component of long-term energy strategy
• Fiscal terms—willingness to create incentives in the form of more attractive profit splits
for difficult areas
• Potential early commercialization—contractual flexibility through gross PSCs may allow
gas produced during exploration to be utilized
• Existing infrastructure in some areas—cooperation with mining concession holders could
allow the use of existing infrastructure
• Water access—Indonesia is relatively water rich
• Commitment of regulators to legislate for the peculiarities of unconventional gas resource
development—the relative infancy and evolving nature of the regulatory regime provide
opportunities for stakeholders to influence policy
Challenges
• Regulatory reliability—frequent regulatory changes to fiscal terms, local content,
cost recovery, etc., and the lack of dependable, politically neutral dispute resolution
mechanisms (for land disputes, for example)
• Land access—difficult terrain in play areas; dealing with multiple land owners and
difficulties in identifying title holders may cause delays and uncertainty in securing access
• Regulatory approval speed—numerous approvals required, delays common, approval
processes reputedly slow even for uncomplicated matters in some cases
• Market restrictions—the requirement to supply a minimum of 25% of production to the
domestic market coupled with fuel subsidies affects returns
• Lack of infrastructure and terrain challenges in many parts of the archipelago
is compounded by administrative jurisdictions in some areas that are not clearly defined or
coordinated. By way of analogy, a number of mining concessions have been revoked by
district mayors for failure to comply with the terms of licenses and regulatory requirements.
LAND ACCESS
In Indonesia the right to exploit oil and natural gas does not provide for surface rights. To
support oil and gas operations, there is an obligation for land holders to provide access to
the holder of petroleum rights upon presentation of a valid copy of the cooperation contract,
subject to advance payment or guaranteed payment of compensation.1
1. Article 35, Oil and Gas Law 2001.
D-2 Appendix D
© 2012 IHS
Although oil and gas legislation provides processes for acquiring land access, there are
several challenges in negotiating compensation with land owners. Multiple land owners;
the unsystematic, fragmented land registration regime; and difficulties in identifying title
holders create the potential for disputes that in turn could cause delays in operations.
Much of the land overlying CBM basins is likely to be already held by numerous, diverse
parties. Depending on the region, these land holders may be coal mine owners, oil and gas
companies, oil palm plantations, or logging companies as well as small-scale agricultural
and community holders.
There are no fixed rules determining the level of compensation for land owners, so this has
to be agreed upon by the parties. Where the land concerned is communal land held under
a traditional title, agreement must be reached with due regard for the traditional rights of
the local community, and the compensation amount must reflect the latest sales prices.
Indemnification for buildings, plants, and other assets located on the land concerned must
be guided by related technical standards.1 Land acquired by the contractor for petroleum
operations becomes the property of the state.2
Regulation of the Minister of Energy and Mineral Resources No. 5 of 2012 on the Procedure
of Determining and Offering Non-Conventional Oil & Natural Gas Working Areas sets out
procedures for establishing working areas for unconventional gas. Although the definition of
unconventional gas appears to include CBM, the regulation specifically states that CBM will
continue to be subject to Regulation 36 of 2008.3 Regulation No. 5 follows lines similar to
that of CBM in establishing working areas for unconventional gas and sets the maximum
working area size at 3,000 square kilometers (sq km) onshore and 4,500 sq km offshore.
The Basic Agrarian Law (BAL) defines the types of rights that private individuals and
entities may hold, and describes the role of the state with regard to its direct use of land as
well as its regulation of private rights and private uses of land.4 The BAL does not apply
to forests, which cover most of Indonesia’s land. Land classified as forest land (including
land without tree cover) is administered by the Ministry of Forestry.
The National Land Agency was until recently solely responsible for determining the status
of allocating, registering, and regulating all land classified as nonforest. Some of these
responsibilities and powers are now assumed by provincial government structures charged
with land administration.
A further complicating factor is that ultimately, large-scale land disputes tend to be resolved
politically because there is no civil process that disputants can view as consistent or legitimate.
Courts, as opposed to being neutral, remain susceptible to outside political influences. The
inadequacy of the current system has prompted repeated calls for the creation of a Land
Court.5
1. Article 62-71, Oil and Gas Law 2001.
2. Article 67, Oil and Gas Law 2001; except land which is leased.
3. Article 67, Regulation of the Minister of Energy and Mineral Resources No. 5 of 2012 on The Procedure of
Determining and Offering Non-Conventional Oil & Natural Gas Working Areas.
4. Law No. 5 of 1960.
5. (Lindsey 1998; Fitzpatrick 1997) Lindsey, Timothy. 1998, Square pegs & round holes: Fitting modern title into
traditional societies in Indonesia. Pacific Rim Law and Policy Journal, 7:699–71.
Appendix D D-3
© 2012 IHS

Although the current CBM and oil and gas regulations provide rules on CBM operators’
rights and land access (for example, CBM companies can negotiate with other parties for
land access), these rules do not negate the need for a lengthy negotiation process between
the CBM operator and multiple parties regarding the price to be paid for land access.
Overlapping tenure adds another level of complexity to land access. The government is
beginning to adjust fiscal and licensing terms to help investors cope with this. The regulation
attempts to provide clarity for overlapping tenure situations between coal, and oil and gas
tenure holders: essentially, oil and gas contractors have priority over coal mining contractors
in overlapping areas, with some exceptions for contracts made prior to the passage of the
regulation (see the box “Regulation of Overlapping Rights in Indonesia”).
BUSINESS TERMS
In Indonesia all oil and natural gas resources are owned by the state. Most exploration and
production activity takes place under PSCs that grant contractors exclusive rights to explore
for, develop, and produce hydrocarbons from specified contract areas. PSCs are based on
the contractor’s having a 100% financial interest in exploration and production operations
and receiving a share of subsequent production.1 Petroleum operations are managed by
BPMigas, and all capital risk is borne by the contractor.
CBM contracts may take one of two forms, namely a gross PSC or the traditional PSC. Under
the gross PSC, the revenue split is calculated from the CBM gross production, meaning that
the output will be divided directly between the government and the contractor without any
reduction for cost recovery. Unlike in the traditional PSC, the gross PSC does not allow for
the contractors’ cost to be refunded by the government. In areas where there are no current
coal concessions or PSC holders, the area is open for tenders submitted under current PSC
tender rules. A company intending to apply for a CBM development PSC must establish a
separate company to undertake the CBM operations.
Regulation of Overlapping Rights in Indonesia
The management of overlapping rights is organized as follows:

• In CBM open areas, no preferential right exists.
• Where CBM is located in oil and gas working areas, preference is given to the oil and gas
contractor.
• Where CBM is located in coal mine working areas, preference is given to the mining
concession holder.
• Where CBM is located in overlapping areas with both oil and gas as well as coal mine
operations, preference is given to the oil and gas contractor.
1. Other contract types cover specific situations. These include Technical Assistance Contract (TAC) and Enhanced
Oil Recovery (EOR) Contract.
D-4 Appendix D
© 2012 IHS
In conventional oil and gas development, traditional PSCs allow new gas to be used only
after a field development plan (PoD) is signed. The gross PSC, in contrast, allows the gas
produced during the dewatering process to be used and commercialized before a PoD is
signed. For example, gas produced in the dewatering process could be used for small-scale
power plants supporting communities close to the gas source.
One touted advantage of this system is that it removes the requirement for cost recovery and
allows contractors to control their costs and also secures the government’s nontax revenue.
This arrangement could in principle alleviate concerns about changing cost-recovery rules
and the Indonesian government’s concern about rising cost recovery over recent years.
However, the gross PSC has yet to be officially used, and CBM blocks have to date been
awarded under traditional PSCs. The precise procedures for the operation of gross PSCs
have yet to be officially enshrined in legislation and implemented fully.
The government has implemented other changes to business terms, making them more
attractive to investors in unconventionals. Such changes include the introduction of tenure-
specific regulations such as acreage size, length of tenure, and the approach to be followed
in the event of overlapping tenures, as noted above. Although practical implementation
issues remain, there is an impetus to develop the sector and a corresponding opportunity
for stakeholders to influence the direction of the developing unconventional gas regime.
DOWNSTREAM INFRASTRUCTURE AVAILABILITY

The remoteness of some of the unconventional resources means that absence of infrastructure to
support distribution and commercial exploration is a major challenge to resource monetization.
Major production sites are far from the electricity grid network and the main population
centers of Java. There is an opportunity to coordinate with existing tenure holders (such as
mining concession holders) to share existing infrastructure (roads, etc.) where appropriate.
However, as with the current regime governing land access, mechanisms for facilitating
agreements are not well defined, and such agreements need to be independently negotiated.
In the longer term, the government is attempting to address infrastructure issues by

implementing the Indonesia Economic Corridors Master Plan to 2025. The crux of this
plan is to position refineries and industrial production sites at the sources of primary energy
production. In the shorter term, unconventional gas development will naturally be easier in
areas close to existing infrastructure. For example, PT Badak’s Bontang plant (the world’s
second-largest LNG facility) is considered to be the most likely market for CBM projects
around eastern Kalimantan.
WATER AVAILABILITY AND MANAGEMENT

Water access and availability are generally not considered a challenge in Indonesia given
water’s abundance and the relative lack of competition for it in the remote areas where
hydrocarbon resources are found.
Appendix D D-5
© 2012 IHS

Water balances are positive both nationally and on each island. However, in Java and Nusa
Tenggara a water deficit occurs during the dry season (July to October, varying by province).
Even some large and important river areas in Java, including the Bengawan Solo, Brantas,
Ciliwung, Cimanuk, Citanduy, and Ciujung, face water deficit problems during the dry
season. This seasonal and geographical variation in rainfall coupled with inadequate storage
can create competition between water users.
Water resource management is increasingly important in Java and other islands, including
Kalimantan, Sumatra, Sulawesi, and Papua. Each has different problems and hence requires
different approaches. Problems in Java are caused by overpopulation as well as degradation
and depletion of water and other natural resources. The other islands have some degradation
of water and other natural resources because of widespread deforestation, improper mining
practices, and new plantations. Overexploitation of groundwater has resulted in some critical
problems, including contamination by pollutants, salinization of aquifers, and land subsidence.
Land subsidence occurs mainly as a result of a strong decline in deep groundwater levels
in areas with high groundwater extraction.1
There are a number of prescriptive and potentially onerous environmental controls in

federal and local regulations as well as in model contracts. Some duplication appears in
that environmental impact studies are required for all natural resource exploitation as well
as for a separate environmental license.
Indonesia’s humid tropical conditions may lead to water disposal challenges. If large
evaporation ponds are ill suited to the environment, the water produced during dewatering
may need to be reinjected or treated and disposed of by other means. Coal beds are also
likely to contain large numbers of pores and fractures capable of storing water, and pumping
water from coal beds can create high levels of waste.
Mercury is present in some gas fields and reservoirs in Indonesia, and some waste containing
mercury could be produced from gas field operations. Producers are responsible for their
own waste management, and there are no mercury recovery facilities in Indonesia. Mercury
containing waste is stored in special licensed facilities applying special technical guidelines
that are subject to compliance and monitoring inspection programs.2
WATER ADMINISTRATION AND LEGAL REGIME

Water resources are managed by the Ministry of Public Works through the Directorate
General of Water Resources. The directorate’s remit includes meeting increasing demands for
drinking water and for industry and thus to develop, conserve, and manage water resources.
The directorate is also responsible for planning, design, construction, equipment, operations
and maintenance, and guidance in water resources development.
1. http://www.fao.org/nr/water/aquastat/countries_regions/indonesia/index.stm.
2. United Nations Environment Program: Preparation of a global legally binding instrument on mercury 2011.
D-6 Appendix D
© 2012 IHS
Numerous other institutions are also currently involved in water resources management
including the Ministry of Forestry (responsible for catchment area development), the Ministry
of Environment (responsible for environmental quality development and management), and the
Environmental Impact Management Agency (responsible for environmental impact control).
The responsibility for river basin management is divided among the district, provincial, and
central governments, depending on where river basins are located and whether they cross
district, provincial, and national boundaries. Indonesia is divided into 133 River Basin Territory
(RBT) areas as a basis for Integrated Water Resources Management. The administrative
system for each RBT is based on a water resources strategic plan and master plan.
Presidential Decree No. 12 of 2008: Water Resources Council brings together the various
authorities at the different administrative levels: a National Water Council, 18 province-based
Water Councils, and 21 river basin–based Water Councils.
The Law on Water Resources (Law No. 7 of 2004) regulates water use, creating a regime
for surface water and groundwater but not waste water. Article 6 of the law affirms the
state’s control over all water resources.1
The Minister of Environment Regulation No. 02 of 2011 outlines the wastewater quality
standards for water disposal from CBM activities. Article 8 of this regulation allows
provincial authorities to define wastewater quality standards for CBM activities to an equal
or more stringent degree than those required by the regulation. In addition, extra parameters
beyond those listed in the regulation may be imposed by the provinces with the Minster of
Environment’s approval. Wastewater disposal by means of injection must be carried out in
accordance with the relevant current regulation which imposes a number of requirements
for monitoring and reporting.2
BROADER REGULATORY ISSUES

A considerable challenge that prospective investors face in Indonesia is the management of
regulatory permitting and processes. On a general level, Indonesia currently ranks relatively
poorly on the World Bank’s “Doing Business” index measuring the ease of doing business.3
On the specific issue of oil and gas development, Indonesia has a reputation for numerous
approval requirements with some duplicative approvals and generally slow-moving bureaucratic
processes.
Indonesian regulatory risks include its changing regulations on a number of areas, including
cost recovery and gas allocation. For example, Government Regulation No. 79 of 2010 on
cost recovery sparked new concerns for investors about contract sanctity and the robustness
1. As does Article 33 of Indonesia’s Constitution.

2. Regulation of the Minister of Environment Number 19 Year 2010 Waste Water Quality Standards for Business and/
or Activities of Oil and Gas and Geothermal.
3. Indonesia is ranked 129 out of 183 countries and 19 out of 24 countries in the East Asia Pacific Region, according
to the World Bank in June 2011. http://www.doingbusiness.org/rankings.
Appendix D D-7
© 2012 IHS

of other key investment criteria. It has been reported that this regulation may be revised
in order to speed up the efforts to increase oil and natural gas production. However, the
frequent changing of regulations clearly remains a concern for investors.
Local content and cost recovery have been a source of anxiety among investors, as these
rules have traditionally been subject to frequent unilateral change. Currently operators must
use a minimum of 35% domestic content, and exceptions require the approval of the Minister
of Energy and Mineral Resources. Relying on local suppliers for services and equipment is
likely to be a challenge to development of unconventionals in view of the infancy of such
development and of the demanding operational requirements.
The Domestic Market Obligation

The Domestic Market Obligation (DMO) remains an important regulation addressing the
allocation of gas for domestic use. Under the original government regulation No. 34/2004,
the DMO allowed the Minister of Energy and Mineral Resources to define the share of gas
production that each upstream contractor was required to sell into the domestic market, up
to a maximum of 25%. The 2008 revision to this policy introduced a five-year grace period
from the time of first production, during which there was no obligation, but from year 6
onward made the minimum share to be sold domestically 25%. However, the regulation
does allow upstream producers to market DMO volumes internationally if negotiations to
sell the required share of gas domestically have failed, having been undertaken in good faith.
Another revision to the regulation passed in 2010 set out a prioritization scheme for domestic
sales, with the fertilizer industry at the top level, followed by power generation.
The DMO remains a contentious policy which has suffered from weak implementation,
particularly in the face of resistance from older PSC projects. A further complication is
Indonesia’s geography, which makes domestic sales difficult or impossible for resources
located in the more remote parts of the country owing to a lack of local markets and transport
infrastructure. The burden of the DMO has been heightened by exposure to Indonesia’s
domestic gas prices which historically have been low. Whereas the cost to a producer of
the DMO for oil producers is more predictable—with the domestic price set at 25% of
the world market price—for gas the prices are negotiated on a project-by-project basis, as
already described. The DMO volume levels for unconventional gas remain unclear.
Swaps have been discussed as a way to manage the geographical problems of enforcing the
DMO, with remote producers meeting their domestic obligation through swaps with suppliers
located closer to demand centers in Java and Sumatra. One example is Pertamina’s swap
proposal for the Donggi-Senoro fields. It is possible that a growing emphasis on swaps
could prove helpful for sanctioning commercial development of unconventional resources
located closer to demand centers.
D-8 Appendix D
© 2012 IHS
Environmental Regulation
Other risks are related to environmental regulation. Environmental regulation comes under the
framework Law No. 32/2009 Regarding Environmental Protection and Management, which
deals with a number of issues, including the requirement for environmental scrutiny prior to
undertaking operations. The natural resources exploitation is classed as a business activity,
and it requires an Environmental Impact Assessment (EIA) and an environmental license.
Indonesia’s federal structure (under which there are 27 provinces) is subdivided into regions
and then into districts, which creates jurisdiction uncertainty in environmental matters.
The implementation of the decentralization and regional autonomy policy has given local
government bodies a major role in the protection of Indonesia’s environment and the
management of its natural resources. However, the resulting unclear division of responsibilities
creates obstacles for enforcement of environmental law for government and uncertainty for
private investors.
Jurisdictional issues also exist among various ministries and government entities. There are
overlapping jurisdictions concerning the Office of the State Minister/Environmental Impact
Management Agency BAPEDAL and other ministries such as the Ministry of Forestry
and Ministry of Industries. One consequence of this situation is patchy enforcement of
environmental regulations and slow response to problems.1
1. Development Law Update, Issue 6/2006: Strengthening Environmental Law Compliance and Enforcement in
Indonesia, http://www.idlo.int/publications/30.pdf.
Appendix D D-9
© 2012 IHS
For more information on IHS CERA’s The Unconventional Frontier—Indonesia
Multiclient Study, please contact:
Roberto Futuro
+33 1 7676 0092
Roberto.Futuro@ihs.com
The Source for Critical Information and InsightTM ihs.com

Corporate Headquarters IHS CERA
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Englewood, CO 80112 USA Cambridge, MA 02142 USA
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Copyright © 2012 IHS Inc. All rights reserved. G200

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An IHS CERA Multiclient Study

The Unconventional Frontier

List of Figures and Tables.................................................................................. v

PHASE I: GEOLOGICAL FRAMEWORK, RESOURCE POTENTIAL, AND

PHASE II: PRODUCTION POTENTIAL OF INDONESIA’S UNCONVENTIONAL

Indonesia Unconventional Gas Productive Capacity Outlook Summary........ II-26

PHASE III: THE FUTURE OF UNCONVENTIONAL GAS

APPENDIX C: SUPPLEMENTARY TABLES

LIST OF FIGURES AND TABLES

Phase I: Geological Framework, Resource Potential, and Subsurface Risk

• Figure I-2: Distribution of Shale Gas GIP by Region in Indonesia

• Figure I-3: Distribution of CBM GIP by Region in Indonesia

• Figure I-4: Distribution of Shale Gas GIP Resources by Geological Age

• Figure I-5: Average Risk Shale Gas Plays by Region

• Figure I-6: Average Risk Shale Gas Plays by Geological Age

• Figure I-7: Average Risk of CBM Plays by Region

• Figure I-8: Location of High-Potential Shale Gas Plays in Indonesia

• Figure I-10: Stratigraphic Column of the Prospective Shale Section in the

• Figure I-16: Stratigraphic Column of the Prospective Shale and Coal

• Figure I-17: Location of Shale Gas Plays in East Java

• Figure I-18: Stratigraphic Column of the Prospective Shale Sections in

• Figure I-27: Location of the Shale Gas Plays in Papua

• Figure I-28: Stratigraphic Column of the Prospective Shale Sections in

Phase II: Production Potential of Indonesia’s Unconventional Gas—

• Figure II-2: Indonesia’s Unconventional Gas Long-Run Supply Curve:

• Figure II-3: Indonesia’s Unconventional Gas Long-Run Supply Curve: Risked

• Figure II-4: Indonesia’s Unconventional Gas Long-Run Supply Curve: Risked

• Figure II-6: Indonesia’s Unconventional Gas: Daily Rate Productive Capacities

• Figure II-11: Kalimantan: Unrisked and Risked Cost of Supply of Shale

• Table II-2: Kalimantan: Low Case Resources, Production Potential and

Phase III: The Future of Unconventional Gas in the Indonesian Domestic

• Figure III-2: Indonesia: Nominal Share of GDP at Factory Cost

• Figure III-3: Indonesia: Population by Demographics

• Figure III-4: Regional Share of Population, 2010

• Figure III-5: Regional Share of GDP, 2010

• Figure III-6: Urea Production Capacity

• Figure III-7: Indonesia: Energy Mix Outlook for 2025

• Figure III-9: Indonesia: Gas Demand Outlook by Sector

• Figure III-10: Indonesia: Gas Demand Outlook by Region

• Figure III-11: Java: Gas Demand Outlook by Sector

• Figure III-12: Sumatra: Gas Demand Outlook by Sector

• Figure III-13: Kalimantan: Gas Demand Outlook by Sector

• Figure III-15: Indonesian Supply-Demand Outlook Without Unconventionals

• Figure III-16: Gas Balance, 2011–35: Total Indonesia

• Figure III-17: Gas Balance, 2011–35: Java

• Figure III-18: Gas Balance, 2011–35: Sumatra

• Figure III-20: Gas Balance, 2011–35: Kalimantan

• Figure III-21: Regional Supply/Demand Balance, 2011

• Figure III-22: Regional Supply/Demand Balance, 2025

• Figure III-23: Regional Supply/Demand Balance, 2035

• Figure III-24: Major Pipelines Capacity Requirements, 2015

• Figure III-25: Major Pipelines Capacity Requirements, 2020

• Figure III-26: Supply Cost Stacks into West Java (Jakarta)

• Figure III-27: Supply Cost Stacks into Central Java (Semarang)

• Figure III-28: Supply Cost Stacks into North Sumatra (Medan)

• Figure III-30: LNG Demand Expectation in Pacific Markets Far Surpasses

• Figure III-31: Continued Demand Growth in Pacific Markets

• Figure III-32: Competition from Uncontracted Pacific Supply and Flexible

• Figure III-33: Indonesian LNG from Conventional and Shale Production Is

• Figure III-34: Bontang LNG Will Be Best Placed to Utilize Unconventional

• Table III-2: Indonesia’s LNG Regasification Terminal Projects

Appendix A: Production Potential: Methodology

• Figure A-2: Operational and Production Framework—Assessing Resource

• Figure A-3: Phase II: Operational and Production Framework—Assessing