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Coalbed methane development in Indonesia: Design and economic analysis of upstream petroleum fiscal policy

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  • Acquah-Andoh, Elijah
  • Putra, Herdi A.
  • Ifelebuegu, Augustine O.
  • Owusu, Andrews

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.

Suggested Citation

  • Acquah-Andoh, Elijah & Putra, Herdi A. & Ifelebuegu, Augustine O. & Owusu, Andrews, 2019. "Coalbed methane development in Indonesia: Design and economic analysis of upstream petroleum fiscal policy," Energy Policy, Elsevier, vol. 131(C), pages 155-167.
    • Handle: RePEc:eee:enepol:v:131:y:2019:i:c:p:155-167
    DOI: 10.1016/j.enpol.2019.04.035
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    Cited by:

    1. Chandra Setiawan, Indra & Indarto, & Deendarlianto,, 2021. "Quantitative analysis of automobile sector in Indonesian automotive roadmap for achieving national oil and CO2 emission reduction targets by 2030," Energy Policy, Elsevier, vol. 150(C).
    2. Acquah-Andoh, Elijah & Ike, Onyekachi & Ifelebuegu, Augustine O. & Owusu, Andrews, 2020. "The fiscal regime for UK shale gas: Analysing the impacts of pad allowance on shale gas investments," Energy Policy, Elsevier, vol. 146(C).
    3. Fan, Lurong & Wang, Binyu & Song, Xiaoling, 2023. "An authority-enterprise equilibrium differentiated subsidy mechanism for promoting coalbed methane extraction in multiple coal seams," Energy, Elsevier, vol. 263(PA).
    4. Wanqing Wang & Shuran Lyu & Yudong Zhang & Shuqi Ma, 2019. "A Risk Assessment Model of Coalbed Methane Development Based on the Matter-Element Extension Method," Energies, MDPI, vol. 12(20), pages 1-30, October.
    5. M. Rum & Muhammad Basir-Cyio & Sulbadana & Nawawi Natsir, & Rahmat Bakri, 2021. "The Policy of Law Politics on Corruption Eradication in Indonesia and Its Implementation in Central Sulawesi Province," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(5), pages 236-243, May.
    6. Xin Li & Jie Zhang & Rongxin Li & Qi Qi & Yundong Zheng & Cuinan Li & Ben Li & Changjun Wu & Tianyu Hong & Yao Wang & Xiaoxiao Du & Zaipeng Zhao & Xu Liu, 2021. "Numerical Simulation Research on Improvement Effect of Ultrasonic Waves on Seepage Characteristics of Coalbed Methane Reservoir," Energies, MDPI, vol. 14(15), pages 1-15, July.
    7. Fan, Lurong & Xu, Jiuping, 2020. "Authority–enterprise equilibrium based mixed subsidy mechanism for carbon reduction and energy utilization in the coalbed methane industry," Energy Policy, Elsevier, vol. 147(C).

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