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25 February 2010

Indonesian environment law may lead to 50% drop in oil, gas production

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Indonesia Energy and Mineral Resources Ministry officials said Indonesia`s oil and gas production could drop by up to 50 percent if the industry had to comply with standard environmental quality requirements stipulated in a new environment protection law.

Under Law No 32/2009 on Protection and Management of the Living Environment due to come into force on April 1, 2010, oil and gas companies would have to reduce the temperature of waste water from their oil and gas production processes from 45 degrees to 40 degrees Celsius.

"The national oil production target has been set at 965,000 barrels per day but this will have to be lowered by almost 50 percent because of the requirement in the new ennvironment protection law," the energy and mineral resources ministry’s director general for oil and gas affairs, Evita Legowo, said here Wednesday.

The oil and gas contractors in the country would not be able to meet the standard environmental quality requirement in the law, she said.

The obligation to reduce the temperature of the oil and gas companies’ waste water would increase their production costs and the process for them to meet the requirment would take a long time, she said.

Noting that the law also carried sanctions for failure to meet the standard quality requirement, Evita said among the oil and gas companies to be affected the most by the legal provision were PT Chevron Pacific Indonesia and PT Pertamina.

Meanwhile, Budi Indianto, the Oil and Gas Industry Regulatory Agency (BP Migas) deputy chief for operations control, said the agency was proposing to give the industry two or three years` time to comply with the mandatory standard environmental quality requirement.

He said the implementation of the environment protection law would imply an increase in the state’s cost recovery obligation toward oil and gas companies. "We must first study this implication. We cannot allow the state’s obligation to become too expensive," he said.


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