Liga Asuransi – The oil and gas industry has a vital role in the Indonesian economy as one of the main contributors to state income. This sector provides energy which is the backbone for the operations of various industrial, transportation and household sectors. Apart from that, oil and gas also contribute greatly to state revenues through taxes, royalties and dividends from oil and gas companies. In 2024, the oil and gas sector will contribute around 20% of total state revenue, showing its strategic role in maintaining national economic stability.
More than that, the oil and gas industry has an important role in the global energy transition. Amid increasing pressure to switch to clean energy sources, oil and gas remain essential components in ensuring energy security, especially in developing countries like Indonesia. Natural gas, for example, is considered a clean and efficient transition energy compared to other fossil fuels. The strategic role of oil and gas is not only limited to providing energy but also as an enabler in the development of low-carbon energy technologies such as Carbon Capture, Utilization and Storage (CCUS).
Thus, the oil and gas industry is not only an economic pillar but also a key player in ensuring energy sustainability amidst changes in the global energy paradigm.
Global Trends Impacting the Oil and Gas Industry
Global pressure to achieve net zero emissions targets by the middle of this century has created significant changes in energy consumption patterns. Developed countries, such as the European Union, Japan and the United States, have begun to reduce dependence on fossil fuels, including oil and gas. This can be seen from increasing investment in renewable energy such as solar power, wind and hydrogen. As a result, demand for oil and gas in the international market began to slow down, especially for transportation and electricity generation needs.
However, natural gas remains an important energy source because it is considered a transitional energy that is more environmentally friendly than coal. For Indonesia, this creates an opportunity to expand the LNG market in countries that need gas to offset dependence on other fossil energies while facing pressure to reduce carbon emissions.
Global Policy on Carbon Emission Reduction
International policies such as the Paris Agreement have established a global framework for reducing carbon emissions. Many countries have introduced carbon taxes and set ambitious emissions reduction targets. This policy forces oil and gas companies to invest in low-carbon technologies, such as Carbon Capture, Utilization, and Storage (CCUS) and reduce methane emissions during the exploration and production process.
Indonesia is also faced with similar challenges. The government must ensure that oil and gas production remains competitive amidst increasingly stringent global regulations. The development of CCUS technology and fiscal incentives for companies that adopt environmentally friendly practices can be a solution to maintain the competitiveness of the Indonesian oil and gas industry.
Geopolitical and Economic Factors Affecting Oil Prices
World oil prices are always influenced by global geopolitical and economic dynamics. Conflicts in the Middle East region, such as tensions between Iran and Western countries, could disrupt oil supplies and push prices up. Apart from that, OPEC+ production policy is also a major factor. The decision to cut or increase production can cause significant changes in oil prices.
The global economy also plays an important role. When world economic growth slows, as happened during the COVID-19 pandemic, oil demand decreases, putting downward pressure on prices. Conversely, a rapid economic recovery could push oil prices back up.
Implications for producing countries such as Indonesia
For Indonesia, fluctuations in world oil prices have a double impact. When oil prices are high, state revenues from the oil and gas sector increase, providing greater fiscal space for development. However, this also has the impact of increasing the cost of energy subsidies, which burdens the state budget. Conversely, when oil prices are low, oil imports become cheaper, but revenues from oil and gas exports fall significantly.
Indonesia must manage these impacts with flexible and innovative policies. One of them is accelerating economic diversification and increasing efficiency in the oil and gas sector, including through digitalization and the use of advanced technology. With this strategy, Indonesia can mitigate the risk of oil price fluctuations while maximizing the potential of the oil and gas sector in the global market.
Current Conditions of the Indonesian Oil and Gas Industry
Oil and Gas Production Data for 2024
In 2024, Indonesia’s crude oil production is estimated to reach around 615 thousand barrels per day. This figure is still far from the government’s target of 1 million barrels per day planned for 2030. Meanwhile, natural gas production is more positive, reaching around 6.5 billion cubic feet per day. Gas accounts for 60% of total oil and gas production, most of which is used for domestic needs and the remainder is exported to Asian markets such as Japan, South Korea and China.
Dependence on Energy Imports
Indonesia’s domestic energy consumption continues to increase, driven by population growth and industrialization. However, domestic oil production has not been able to meet demand, so Indonesia has to import more than 500 thousand barrels per day. This dependence on imports is a major challenge, because it causes a trade balance deficit in the energy sector.
The Government’s Role in Supporting the Energy Sector
The Indonesian government continues to strive to increase investment attractiveness in the oil and gas sector through various initiatives. One of them is regulatory reform by introducing a gross split profit sharing scheme, which provides greater flexibility for contractors. Apart from that, the government also supports the development of strategic projects such as the construction of new oil refineries to increase domestic processing capacity.
Fiscal Policy, Taxation, and Incentives for Investors
The government provides fiscal incentives in the form of income tax exemptions for new exploration projects and reductions in heavy equipment import taxes to support oil and gas operations. Apart from that, setting competitive royalty rates and simplifying the licensing process are strategic steps to attract foreign investors to undeveloped oil and gas blocks.
Condition of Exploration and Production Facilities
Oil and gas production facilities in Indonesia, especially in old fields such as in Riau and Kalimantan, require technological updates to increase productivity. Meanwhile, exploration in offshore areas, such as Natuna and West Papua, requires large investments due to challenging geographical and environmental conditions.
Use of Advanced Technology in Exploration
The use of advanced technology such as enhanced oil recovery (EOR) and big data-based digital technology has begun to be implemented to increase efficiency and reduce operational costs. Apart from that, carbon capture technology is also a focus to meet global pressure to reduce carbon emissions.
Opportunities for the Oil and Gas Industry in Indonesia in 2025
Promising New Exploration Areas
Indonesia has rich oil and gas resources spread across various regions, especially in basins that have not been fully explored. Regions such as Sumatra, Kalimantan and Papua hold great potential for discovering new reserves. For example, the Sumatra region has a long history as a crude oil producer, while Kalimantan is famous for its abundant natural gas reserves. Papua, especially in offshore areas, shows promising prospects for the development of liquefied natural gas (LNG).
The Natuna Sea has also become a focus for exploration with significant natural gas potential. With the right technology and investment support, these areas can become new oil and gas production centers, replacing old fields whose productivity is declining.
Increased Investment in Exploration Blocks
The Indonesian government continues to encourage investment through auctions of new exploration blocks with more competitive schemes, such as gross split profit sharing. This model provides flexibility for investors in managing operating costs and increases Indonesia’s attractiveness in the eyes of global oil and gas companies.
In addition, fiscal incentives such as import tax exemptions for exploration equipment and reduced royalties in frontier fields have succeeded in attracting the interest of several large companies. With this increase in investment, it is hoped that exploration can accelerate the discovery of new reserves that will support national energy needs and exports.
Domestic Demand for Fuel and Natural Gas
Indonesia’s economic and population growth continues to encourage increased energy consumption, especially in the transportation, industrial and household sectors. Natural gas has become one of the main energy sources for efficient and environmentally friendly electricity generation, replacing the use of coal in several regions.
The government is also accelerating the development of domestic energy infrastructure, such as new oil refineries and gas distribution networks, to reduce dependence on imports and increase energy supply efficiency. Thus, local oil and gas producers have a great opportunity to meet increasing energy needs.
Potential for LNG Exports to Asian Countries
The LNG market in Asia continues to show high demand, driven by energy transition policies in developed countries such as Japan, South Korea and China. As one of the main LNG producers, Indonesia has a geographical advantage to supply this market need with lower logistics costs.
Large projects such as Tangguh LNG and Bontang LNG are the key to Indonesia’s success in maintaining its position as a leading LNG supplier. By increasing production capacity and developing export infrastructure, these opportunities can continue to be expanded.
Strategic Partnerships with Foreign Oil and Gas Companies
Partnerships with global companies such as Chevron, ExxonMobil and Shell give Indonesia access to the latest technology and capital needed for exploration in difficult areas, such as deepwater and offshore. This collaboration also enables technology transfer, increasing local human resource capacity, and accelerating the development of strategic projects.
Joint Project for Energy Technology Development
In facing the pressures of the global energy transition, the development of low-carbon technologies such as Carbon Capture, Utilization, and Storage (CCUS) is a priority. Joint projects with foreign companies enable Indonesia to remain competitive while meeting carbon emission reduction commitments. Apart from that, exploration of hydrogen energy, which is seen as the energy of the future, can also be a focus for technology development in the oil and gas sector.
With a combination of potential new reserves, increasing domestic and export markets, and international strategic partnerships, Indonesia’s oil and gas industry has a great opportunity to develop in 2025. The right strategy can ensure this sector not only supports the national economy but also contributes to the global energy transition .
Challenges Faced
Complex and Slow Bureaucratic Process
One of the main challenges facing the oil and gas industry in Indonesia is the long and complex licensing process. Processing permits for exploration, production and distribution often takes months, even years, thus hampering investment and development of new projects. Even though the government has tried to simplify regulations through the Job Creation Law, its implementation in the field still faces various administrative obstacles.
Legal and Political Barriers to Foreign Investment
Foreign investment is often hampered by legal uncertainty and political risks. Inconsistent policy changes, such as regulatory revisions or new requirements in contractual agreements, create doubts for global investors. In addition, issues related to land ownership and approval from local governments also pose significant challenges.
Increased Investment in Renewable Energy
With global pressure for an energy transition, investment in renewable energy such as solar, wind and hydrogen power continues to increase. Many countries and multinational companies are shifting their focus from fossil fuels to cleaner energy sources. This reduces the attractiveness of the oil and gas sector in the global market, including Indonesia.
Strategies for Remaining Relevant in the Energy Transition Era
To face this competition, the Indonesian oil and gas industry must innovate, such as developing Carbon Capture, Utilization and Storage (CCUS) technology to reduce carbon emissions. In addition, natural gas can be promoted as a transition fuel that is cleaner than coal, thereby remaining relevant on the global energy map.
High Production Costs in Some Regions
Exploration in offshore and deep sea areas, such as Natuna and West Papua, requires very large investment. These high costs are an obstacle to development, especially if world oil prices are low.
Environmental Risks and Work Safety
The oil and gas industry also faces significant environmental risks, such as oil spills and marine pollution, which can damage company reputations and trigger public protests. In addition, work safety at exploration and production sites is a major concern, considering the high risk of accidents and disasters, especially in areas with difficult terrain.
Overcoming these challenges requires a strategic approach, including investment in environmentally friendly technology, safety training, and operational efficiency to ensure industry sustainability.
The Importance of Risk Management and Insurance in the Indonesian Oil and Gas Industry
The oil and gas industry has high risk characteristics, from exploration, production, to distribution. These risks include work accidents, damage to facilities, natural disasters, and legal liability. Therefore, comprehensive risk management and appropriate insurance arrangements are essential to protect assets, operations and business continuity. The following are the types of insurance required in this industry:
- Energy Property Insurance (Energy Property Insurance)
Protect physical assets such as drilling rigs, production platforms, refineries, and storage facilities from the risk of damage due to fire, explosion, or natural disaster. This policy is designed to protect large investments in energy infrastructure.
- Construction and Erection Insurance (CAR/EAR)
Used during the construction phase of oil and gas facilities, including the construction of refineries, pipelines and supporting infrastructure. This policy protects the project from physical damage or construction failure due to accidents or technical errors during construction.
- Drilling Insurance (Exploration and Drilling Insurance)
Includes protection for drilling rigs and supporting equipment, both onshore and offshore. Risks such as blowout, fire, or equipment damage during drilling operations are covered by this policy.
- Civil Liability Insurance (Public Liability Insurance)
Protects the company from third party lawsuits resulting from property damage, injury or death related to oil and gas operations. This is critical to maintaining a company’s reputation and protecting against potential major legal losses.
- Environmental Insurance (Environmental Liability Insurance)
Provides protection against claims related to environmental pollution, such as oil or gas spills that can cause ecosystem damage. With increasing regulatory pressure, this insurance is becoming increasingly important.
- Business Interruption Insurance
Protect company income from losses due to operational disruptions, such as fire or natural disasters that cause production to stop. This policy ensures business continuity during the recovery process.
- Cargo Insurance (Marine Cargo Insurance)
Covers coverage for the transportation of crude oil, gas, or other energy products from production sites to refineries or markets. Risks such as damage, theft or loss during transportation can be minimized with this policy.
- Professional Liability Insurance (Professional Liability Insurance)
Protects consultants, contractors and technical service providers from claims resulting from professional errors or negligence during the design or management of oil and gas projects.
With the unique risks in this industry, good risk management and selecting appropriate insurance can help companies face operational and financial challenges, maintain business continuity, and protect all stakeholders.
The Importance of the Function of a Specialist Oil and Gas Insurance Broker such as L&G Insurance Broker
The oil and gas (oil and gas) industry has complex and specific risks, ranging from work accidents, asset damage, to environmental liability. In facing these challenges, the role of specialist insurance brokers such as L&G Insurance Brokers is critical to ensure optimal protection for companies in this sector.
L&G Insurance Broker understands the unique dynamics and risks in the oil and gas industry, including exploration, production and distribution. As a specialist, L&G is able to analyze risks in depth, assisting clients in designing insurance programs that suit their operational needs. This includes policy arrangements such as Energy Property Insurance, Construction All Risk (CAR/EAR), Environmental Liability, and Marine Cargo Insurance.
In addition, L&G has expertise in negotiating with various insurance companies, both local and international, to obtain comprehensive coverage with competitive premiums. Brokers also provide support in claims management, ensuring the process runs smoothly and clients receive a fair settlement.
L&G’s advantage lies in understanding local regulations, global developments and the latest technology, including the need for insurance that supports low-carbon initiatives such as Carbon Capture and Storage. With a data and technology-driven approach, L&G helps clients proactively manage risk and increase competitiveness amidst the global energy transition.
In a challenging oil and gas industry, the presence of specialist insurance brokers like L&G ensures that companies have optimal protection, minimize risk and support the sustainability of their business.
Conclusions and Recommendations
Indonesia’s oil and gas industry in 2025 faces significant challenges, including global pressure for the energy transition, fluctuations in world oil prices, and the need to improve operational efficiency and sustainability. On the other hand, great opportunities also exist through exploration of new regions, increasing domestic markets, and international cooperation. With potentially abundant oil and gas reserves, this sector remains an important pillar in the national economy and the global energy transition.
However, the success of this sector is highly dependent on effective risk management. The role of specialist insurance brokers such as L&G Insurance Brokers is crucial in helping oil and gas companies face these challenges. With a deep understanding of the oil and gas industry’s unique risks, brokers can design appropriate insurance programs, manage claims efficiently, and ensure optimal protection for assets and operations.
Recommendation:
- Oil and gas companies should partner with specialist insurance brokers to obtain protection solutions that suit the industry’s needs.
- The government needs to accelerate regulatory reform to increase investment attractiveness.
- Companies must invest in environmentally friendly technologies such as Carbon Capture and digital innovation for efficiency and sustainability.
- International collaboration needs to be enhanced to leverage global technology and expertise in risk exploration and management.
- With these steps, Indonesia’s oil and gas sector can continue to develop and be relevant in the energy transition era.
This article is brought to you by Insurance Broker L&G Insurance Broker.
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