"Open Sourcing" oil and gas sector

Eddy Satriya, Jakarta

Jakarta Post 2 Nov 2007 http://www.thejakartapost.com/yesterdaydetail.asp?fileid=20071102.E03

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

What does really matter is that while the oil price has recently reached a historical high of US$93 per barrel, our government has been preoccupied with non-technical concerns instead of focusing efforts on increasing production back to 1.3 millions barrel per day. Sadly, the country fails again to maximize revenues from oil and gas production, and the government is still trapped by fuel and electricity subsidies.

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

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

The government should launch concerted efforts to increase oil production, which has long remained below one million barrels a day.
But increasing oil production quickly is not an easy task, since it often takes five to seven years before explorations lead to oil output. Moreover, we need unconventional ways to jack up our production.

Take Rob McEwen, for example, the chief executive officer of Goldcorp Inc., Canada. McEwen struggled to keep his Toronto-based gold mining company from bankruptcy due to a series of strikes, mountains of debt and an extremely high cost of production.

When most of the analysts assumed that the company was dying, McEwen borrowed a page from Linux, the computer operating system company that saw astonishing development after opening and sharing the source code for its computer programs.

In order to arrive at accurate estimates of gold's value and exact location, McEwen decided in March 2000 to put all of his company's geology data in a digital file and share it with the world. He unveiled "Goldcorp Challenges" with a total $575,000 in prize money to the winner with the best methods and estimates.

More than 1,400 scientists, engineers and geologists around the globe downloaded the company's data and completed a virtual exploration. The winners successfully developed a more powerful 3-D graphical depiction of the mine without ever visiting the site.
In short, by applying an open source approach McEwen successfully kept Goldcorp Inc. from bankruptcy while also showing the world that exposing super-secret data doesn't necessarily harm a company's interests.

In Indonesia, what really matters now is changing the mindset of the officials in charge of oil and gas development.

Despite the fact that Indonesia is no longer a net oil exporting country, the government should continue focusing efforts on improving governance in the hydrocarbon sector. Only with such new approaches will the national oil and gas industry regain their roles in the national economy. Failing to do so will destroy all opportunities to increase oil production and cash more dollars for the state budget.

Therefore, all stakeholders of the oil and gas industry have to work to identify and remove constraints while also introducing "more open" approaches to increase oil reserves and pump the production rate back at least 1.3 million barrels per day.
Since gas price is practically pegged to oil price, the same approach must also be applied to natural gas business and its product. This is the essence of sectoral reform in oil and gas industry.

The country has already suffered from an "oily" system. The reluctance in putting relevant information on the table -- such as the volume of gas reserves -- has halted the East Kalimantan-Java Gas Pipeline project. Also, a lack of openness in policy implementation on LNG usage priority has closed down tens of factories in Java and Sumatra at a time when we've renewed our commitment to Japanese industries by promising millions of tons of LNG cargoes for the next ten years.

Finally, I'm reminded of the question of one my macroeconomics professors in the U.S. During my first fall semester in 1995, he asked me about what the first Iraq war meant to me as an Indonesian. I replied, "Thank God, it improved my salary and the country cashed in on oil windfall for economic development". Indeed, rocketing oil prices are supposed to make Indonesia prosperous, not impoverished.

The writer is a senior infrastructure economist at the Coordinating Ministry for Economic Affairs. The views here are personal. He can be contacted at satriyaeddy@gmail.com.


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Due to a very efficient editing process on The JP, I would be very happy to provide additional reference as the followings:
· It is not a big surprise to know that Indonesia’s Implementing Body for Oil and Gas Upstream Business (BP Migas) was now struggling to select the best consultant to ”fix” its financial report (Kompas, 25/08/07).
· As reported, the government might have taken several actions to anticipate consequences of the increase on oil price to the national economy (Media Indonesia, 24/10/07).
· Seeking the way out to increase oil production absolutely is not an easy task. Pumping up production capacity needs 5 to 7 years in practice as admitted by Minister Purnomo Yusgiantoro (Kompas, 27/10/07).
· For the case of Indonesia, and considering other socio-economic and recent political situation, the only way to do is to think from “out of the box” as Rob McEwen did. Rob McEwen, CEO of Goldcorp Inc. of Canada, has successfully found the way out in keeping his company exist. As Don Tapscott and Anthony D. Williams explain in “Wikinomics: How Mass Collaboration Changes Everything” (2006, p.7-9),


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