Coalbed Methane Development in Indonesia: Design and Economic Analysis of Upstream Petroleum Fiscal Policy

Research output: Contribution to journalArticle

Abstract

Due to increasing demand for natural gas in Indonesia, the Government now promotes exploration for coalbed methane (CBM). Currently, Indonesia has 453 trillion cubic feet (TCF) of CBM reserves. However, CBM development in the country is still in the exploration phase, with significant under-investment. To attract investors, a tailored Production Sharing Contracts (PSC) regime is required. Based on a combination of Factor Analysis (FA), Discounted Cash Flows (DCF) and Parameter Sensitivity Analysis, the research explores an optimal scenario of a company’s share of revenue that optimised CBM development contracts. We find that a combination of 5 years straight line depreciation (SLD), 5% First Tranche Petroleum (FTP), 78% Contractor Share (CS) and 35% income tax best spreads the risk of CBM development and exploitation between the government and the contractor. This combination is a more suitable PSC regime for developing CBM in an early stage of the industry. Therefore, the Government must cede some taxes during exploration to incentivise CBM development. Three PSCs regimes are thus required to fully develop and exploit CBM, including exploration, transitional and exploitation phase PSCs which better match contractor risks and returns and ensure reasonable certainty of contractor cost recovery.
LanguageEnglish
Pages155-167
Number of pages13
JournalEnergy Policy
Volume131
Early online date11 May 2019
DOIs
Publication statusE-pub ahead of print - 11 May 2019

Fingerprint

fiscal policy
coalbed methane
Economic analysis
economic analysis
Crude oil
petroleum
Contractors
Taxation
Depreciation
Coal bed methane
Factor analysis
factor analysis
Sensitivity analysis
sensitivity analysis
Industry
natural gas
Natural gas
Recovery
industry

Keywords

  • Coalbed methane
  • Development contracts
  • Investments
  • Natural gas
  • Production sharing contracts
  • Unconventional

ASJC Scopus subject areas

  • Energy(all)
  • Management, Monitoring, Policy and Law

Cite this

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title = "Coalbed Methane Development in Indonesia: Design and Economic Analysis of Upstream Petroleum Fiscal Policy",
abstract = "Due to increasing demand for natural gas in Indonesia, the Government now promotes exploration for coalbed methane (CBM). Currently, Indonesia has 453 trillion cubic feet (TCF) of CBM reserves. However, CBM development in the country is still in the exploration phase, with significant under-investment. To attract investors, a tailored Production Sharing Contracts (PSC) regime is required. Based on a combination of Factor Analysis (FA), Discounted Cash Flows (DCF) and Parameter Sensitivity Analysis, the research explores an optimal scenario of a company’s share of revenue that optimised CBM development contracts. We find that a combination of 5 years straight line depreciation (SLD), 5{\%} First Tranche Petroleum (FTP), 78{\%} Contractor Share (CS) and 35{\%} income tax best spreads the risk of CBM development and exploitation between the government and the contractor. This combination is a more suitable PSC regime for developing CBM in an early stage of the industry. Therefore, the Government must cede some taxes during exploration to incentivise CBM development. Three PSCs regimes are thus required to fully develop and exploit CBM, including exploration, transitional and exploitation phase PSCs which better match contractor risks and returns and ensure reasonable certainty of contractor cost recovery.",
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author = "Elijah Acquah-Andoh and Herdi PUTRA and Augustine Ifelebuegu and Andrews Owusu",
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