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Opinion November 02, 2007

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"Open Sourcing" oil and gas sector

Eddy Satriya, Jakarta

It is no big surprise that Indonesia's Upstream Oil andGas Regulatory Body (BP Migas) is now struggling toselect the best consultant to "fix" its financial report.Nor did we wonder when the Downstream Oil andGas Regulatory Body (BPH Migas) and theDirectorate General of Oil and Gas recently cameinto dispute over a tendering process.

What does really matter is that while the oil price hasrecently reached a historical high of US$93 perbarrel, our government has been preoccupied withnon-technical concerns instead of focusing efforts onincreasing production back to 1.3 millions barrel perday. Sadly, the country fails again to maximizerevenues from oil and gas production, and thegovernment is still trapped by fuel and electricitysubsidies.

The government said it had prepared severalmeasures to cope with the impact of rising oil prices,but the question remains on how to get out of the oilprice trap.

In fact, there are only two options left. First is toreduce oil-based energy consumption, and second isto increase oil production. The first option, however,is almost impossible due to gross energy efficiency.

The government should launch concerted efforts toincrease oil production, which has long remained

below one million barrels a day.

But increasing oil production quickly is not an easytask, since it often takes five to seven years beforeexplorations lead to oil output. Moreover, we needunconventional ways to jack up our production.

Take Rob McEwen, for example, the chief executiveofficer of Goldcorp Inc., Canada. McEwen struggledto keep his Toronto-based gold mining company frombankruptcy due to a series of strikes, mountains ofdebt and an extremely high cost of production.

When most of the analysts assumed that thecompany was dying, McEwen borrowed a page fromLinux, the computer operating system company thatsaw astonishing development after opening and

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11/2/2007http://www.thejakartapost.com/detaileditorial.asp?fileid=20071102.E03&irec=2


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sharing the source code for its computer programs.

In order to arrive at accurate estimates of gold's valueand exact location, McEwen decided in March 2000to put all of his company's geology data in a digitalfile and share it with the world. He unveiled "GoldcorpChallenges" with a total $575,000 in prize money to

the winner with the best methods and estimates.

More than 1,400 scientists, engineers and geologistsaround the globe downloaded the company's dataand completed a virtual exploration. The winnerssuccessfully developed a more powerful 3-Dgraphical depiction of the mine without ever visitingthe site.

In short, by applying an open source approachMcEwen successfully kept Goldcorp Inc. frombankruptcy while also showing the world thatexposing super-secret data doesn't necessarily harma company's interests.

In Indonesia, what really matters now is changing themindset of the officials in charge of oil and gasdevelopment.

Despite the fact that Indonesia is no longer a net oilexporting country, the government should continuefocusing efforts on improving governance in thehydrocarbon sector. Only with such new approacheswill the national oil and gas industry regain their rolesin the national economy. Failing to do so will destroy

all opportunities to increase oil production and cashmore dollars for the state budget.

Therefore, all stakeholders of the oil and gas industryhave to work to identify and remove constraints whilealso introducing "more open" approaches to increaseoil reserves and pump the production rate back atleast 1.3 million barrels per day.

Since gas price is practically pegged to oil price, thesame approach must also be applied to natural gasbusiness and its product. This is the essence ofsectoral reform in oil and gas industry.

The country has already suffered from an "oily"system. The reluctance in putting relevant informationon the table -- such as the volume of gas reserves --has halted the East Kalimantan-Java Gas Pipelineproject. Also, a lack of openness in policyimplementation on LNG usage priority has closeddown tens of factories in Java and Sumatra at a timewhen we've renewed our commitment to Japaneseindustries by promising millions of tons of LNGcargoes for the next ten years.

Finally, I'm reminded of the question of one my

macroeconomics professors in the U.S. During myfirst fall semester in 1995, he asked me about whatthe first Iraq war meant to me as an Indonesian. Ireplied, "Thank God, it improved my salary and the

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country cashed in on oil windfall for economicdevelopment". Indeed, rocketing oil prices aresupposed to make Indonesia prosperous, notimpoverished.

The writer is a senior infrastructure economist at theCoordinating Ministry for Economic Affairs. The views

here are personal. He can be contacted [email protected].

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