East Kalimantan Environmentally Sustainable Development Strategy

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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