East Kalimantan Environmentally Sustainable Development Strategy

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76 Exhibit 50 experience in the industry, e.g., ex-manager of a good mining company; and (3) training in site inspection. In summary, it is very important for the provincial monitoring team to have: • Sufficient authority and power to undertake all of its responsibilities • Clarity of roles and responsibilities between the team members and the provincial and district mining authorities (dinas) • Sufficient expertise and knowledge • Highest possible integrity of people and processes, and world-class governance processes Almost all of the abatement levers could be implemented through a provincial mine monitoring team Initiatives GDP improvement Abatement 1 Implement stricter review of license applications 2 3 4 5 Stop illegal mining Enforce proper postmining reclamation Encourage process efficiency Minimize methane release DRAFT 1 All administration papers still handled by the district’s mining dinas SOURCE: Interviews; Team analysis Can a mine monitoring team help? Yes Yes Yes Yes Yes What role can the mine monitoring team play? As the provincial expert body who reviews the application 1 ▪ Quality of AMDAL and mining technical plans ▪ Company background check As the surveyor/inspector who can survey the forested lands and check the company’s licenses As the inspector who visits the sites and monitors closely As the expert who visits the sites, observes and diagnoses the mining practices and recommended improvement initiatives As the inspector who visits the sites and monitors closely; Also as a facilitator that helps companies to apply for CDM projects OIL AND GAS SECTOR The oil and gas sector has been a fundamental driver of East Kalimantan’s economy for decades. Onshore fields have been producing oil in East Kalimantan since before Independence; in the 1970s, the sector developed further with the discovery of massive offshore gas fields. Recently, East Kalimantan has been pioneering Indonesia’s development of coal-bed methane. East Kalimantan’s production has been important nationally; it accounted for 42 percent of national upstream gas production and 90 percent of national LNG production in 2008. Yet, the sector is currently in decline with oil and gas production falling 1 percent p.a. since 2000. Thus, in a business-as-usual scenario, emissions from the oil and gas sector will decline naturally. In the other sectors discussed in this report, we have first evaluated options for reducing the current carbon footprint of the sector before considering how to expand the sector with new higher valueadding and lower carbon-emitting activities. Given the expected decline of oil and gas sector going forward, we have switched the order here and first explore how to reverse the sector’s decline. We then turn to the topic of how to reduce emissions from a larger, revitalized industry.
77 Current Context The oil and gas sector contributes almost half of East Kalimantan’s GDP but has been declining at an accelerating rate, 1 percent p.a. since 2000 and 3 percent p.a. since 2005. The majority of East Kalimantan’s oil and gas fields are already mature and production volumes are declining 3 percent p.a. The impact on the province’s GDP of this decline is further amplified by the subsequent drop in downstream gas processing. While the Balikpapan refinery continues to run at 99 percent of its maximum capacity by importing crude oil supplies, the Bontang LNG production facility continues to decline and in 2008 was operating at 80 percent capacity, as it must rely on the declining gas feed from nearby upstream fields. If these trends continue, there will be a significant drop of GDP contribution from oil and gas to East Kalimantan, from IDR 47.2 trillion in 2008 to IDR 31.6 trillion in 2030. This declining role of the oil and gas sector is likely to increase East Kalimantan’s dependence on other, more carbon-intensive sectors such as agriculture, palm oil, and coal mining to secure its future growth. In 2010, the oil and gas sector produced approximately 17.8 MtCO2e from both its upstream and downstream activities. Upstream oil and gas production produced 6.9 MtCO2e; 23 percent of this stemmed from the energy used for the drilling and operating of the production fields. The remaining 77 percent was due to flaring. Flaring occurs most commonly in oil fields where associated gas is produced along with oil from the fields; this gas is separated from the oil at surface facilities and then flared (burned) if the operators do not use it for internal purposes or sell to others. Flaring can also occur at gas fields if production exceeds the field’s processing capacity as well as at downstream processing facilities. An estimated 3.3 MtCO2e are generated from the Balikpapan refinery due its energy needs and processing of oil. The Bontang LNG plants produces an estimated 7.6 MtCO2e from its high energy needs to process, cool, pressurize, and liquefy the natural gas. GDP Potential We have identified three GDP improvement initiatives that could reverse the decline of East Kalimantan’s oil and gas sector and increase GDP by an additional IDR 64.3 trillion by 2030. These initiatives are accelerating upstream exploration (2030 GDP increase of IDR 4.7 trillion), developing coal-bed methane (CBM) fields (IDR 24.3 trillion), and building new downstream gas facilities once the new CBM stream is online (IDR 3.63 trillion) (EXHIBIT 51). DRAFT Accelerating upstream exploration would see an increase of 2030 real GDP by IDR 4.7 trillion. East Kalimantan’s oil and gas resources have been largely exploited, but there remains some potential for new exploration and production, particularly in gas. East Kalimantan’s oil and gas deposits are found in two main basins, the Kutai Basin and Tarakan Basin. The Kutai Basin, for example, still holds estimated reserves of 474 million barrels of oil and 20,663 billion cubic feet (bcf) of gas. Besides in-field exploration, the United States Geological Survey (USGS) routinely estimates how much resources are “yet-to-find” and could be expected from future exploration efforts in a basin. For the Kutai Basin, for example, there is an estimated 50 percent chance (F50) that at least 59.8 trillion cubic feet of gas could be discovered in fields of various sizes. Doubling current exploration efforts could yield new oil and gas production of 35 mbpd and 766 million cubic feet per day (mmcfd) by 2030. Yet, this is insufficient to fully offset the decline in existing mature fields. Accelerated exploration can merely slow the decline in oil production from 8 percent p.a. to 3 percent and the decline in gas production from 2 percent p.a. to almost 0 percent. Coal-bed methane (CBM) is one of the biggest opportunities for East Kalimantan and could increase 2030 GDP by IDR 24.3 trillion. Coal-bed methane is a recent development that allows methane (natural gas) trapped in coal seams to be located, drilled, and sold to conventional gas buyers. East Kalimantan has CBM resources of 109 trillion standard cubic feet (tscf), almost a quarter of Indonesia’s CBM potential (EXHIBIT 53). The current CBM explorations are focused on four exploration blocks within the Kutai Basin that are close to the Bontang LNG plant; they were
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East Kalimantan Environmentally Sus
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3 East Kalimantan Environmentally S
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5 Contents Preface 7 Acknowledgemen
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7 Preface A broad global consensus
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9 Acknowledgements The DNPI and the
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11 Executive summary East Kalimanta
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13 1. The development of coal-bed m
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DRAFT 15
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17 Kaltim Green Program The Governm
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19 1. The context for East Kalimant
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21 This resource development pathwa
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23 Both Berau and Malinau are large
Page 25 and 26: 25 In the BAU scenario, CO 2 e emis
Page 27 and 28: 27 TOP 5 ABATEMENT INITIATIVES Top
Page 29 and 30: 29 Kalimantan’s shift to a climat
Page 31 and 32: 31 The sector’s 57 MtCO2e of net
Page 33 and 34: 33 Outside of the sector’s need f
Page 35 and 36: 35 The greatest expansion is expect
Page 37 and 38: 37 improving water management in on
Page 39 and 40: 39 Including financial transfers fo
Page 41 and 42: 41 after the identified abatement m
Page 43 and 44: 43 The Case of Oil Palm Permits and
Page 45 and 46: 45 Emissions from the forestry sect
Page 47 and 48: 47 across Kalimantan in 1997 and 19
Page 49 and 50: 49 Utilizing concession buyout sche
Page 51 and 52: 51 Pilot Projects Pilot projects ha
Page 53 and 54: 53 GDP Potential The economic decli
Page 55 and 56: 55 Downstream manufacturing would i
Page 57 and 58: 57 downstream manufacturing as it w
Page 59 and 60: 59 Swidden agricultural practiced b
Page 61 and 62: 61 Although East Kalimantan has far
Page 63 and 64: 63 Reaching average national yields
Page 65 and 66: 65 farmers . We have identified sev
Page 67 and 68: 67 Many mining operations are locat
Page 69 and 70: 69 Unlike timber or oil palm planta
Page 71 and 72: 71 exploration and production conce
Page 73 and 74: 73 The Economic Opportunity of Post
Page 75: 75 Entering downstream value chain
Page 79 and 80: 79 granted in 2008-2009 and contain
Page 81 and 82: 81 Emission from flaring is declini
Page 83 and 84: 83 Satellite images can help monito
Page 85 and 86: 85 Under business as usual, relativ
Page 87 and 88: 87 BERAU Berau is the third largest
Page 89 and 90: 89 350,000 ha of Kutai Timur is cat
Page 91 and 92: 91 substantial natural resource ext
Page 93 and 94: 93 Borneo conservation area as well
Page 95 and 96: 95 agricultural processing. As Pena
Page 97 and 98: 97 Range of climate related risks t
Page 99 and 100: 99 predict increased precipitation
Page 101 and 102: 101 In addition to the refinery and
Page 103 and 104: 103 The greatest economic risks fro
Page 105 and 106: 105 change issues. In December 2009
Page 107 and 108: 107 Proposed BFCP governance and ma
Page 109 and 110: 109 the lack of a strong system, th
Page 111 and 112: 111 Carbon Accounting, Standards, a
Page 113 and 114: 113 EXAMPLE INITIATIVES REQUIRING C
Page 115 and 116: 115 for example, includes represent
Page 117 and 118: DRAFT 117
Page 119 and 120: 119 Sources • 2010, Kesiapan Kali
Page 121 and 122: 121 • Badan Perijinan Dan Penanam
Page 123 and 124: 123 • Daniel Murdiyarso et al, Me
Page 125 and 126: 125 • Marcus Colchester et al, Pr
Page 127 and 128:
127 • Yosep Ruslim et al, STUDY O
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