Indonesia Drafts Regulations on Carbon Capture and Storage and Carbon Capture Utilisation and Storage to Accelerate Project Execution

Carbon capture and storage (CCS) and carbon capture, utilisation, and storage (CCUS), both tools for reducing greenhouse gas emissions, will contribute significantly to Indonesia’s pathway to net-zero emission by 2060. The country has identified reservoirs of depleted oil and gas containing 2.09 gigatonnes of carbon dioxide (CO2) that can be used for CCS and CCUS. It has also identified an estimated 9.68 gigatonnes of CO2 from saline aquifers. The Government of Indonesia is drafting regulations to accelerate the implementation of CCS and CCUS projects, provide transparent mechanisms to ensure safety of operation, and promote sustainable CCS and CCUS projects.

The regulations of the Ministry of Energy and Mineral Resources (MEMR) on CCS and CCUS will mainly deal with the rights of contractors to implement CCS or CCUS in their work areas; mechanisms for approval and implementation of projects; economic incentives; monitoring, measurement, reporting, and verification requirements; health, safety, environmental, and social aspects; and decommissioning and transfer liability once a project is over. The regulations are expected to be promulgated before the end of 2022.

Indonesia’s oil and gas law mandates that the state is responsible for oil and gas exploration and production. Under a production-sharing contract, the government appoints major, independent, and/or private domestic oil companies through  Pertamina, the national oil company supervising the oil and gas operations of foreign contractors. Contractors are to bear the exploration risk and production cost. Once oil or gas is discovered and deemed economically feasible to produce, contractors will first recover all investment. MEMR’s Directorate General of Oil and Gas is tasked to formulate policies on sharing oil or gas between contractor and government, incentives to boost investment, safety aspects, and cost-recovery mechanisms. The other government offices involved in oil and gas operations are the Ministry of Finance, which formulates fiscal incentives, and the Ministry of Environment, which is responsible in overseeing the environmental aspects of the operations. The government has assigned the Special Task Force for Upstream Oil and Gas (SKKMIGAS) to sign contracts and work with contractors on a day-to-day basis to ensure that contracts are executed properly. For the Aceh Special Autonomy Region, such role is assigned to Aceh Oil and Gas Management Agency (BPMA).

As of March 2022, 82 active contractors had produced 621,000 barrels of oil per day (MBOPD) and 640 million standard cubic feet per day (MMSCFD) of gas. At present, 175 contractors are involved in gas and oil exploration and 54 contractors in coal bed methane (CBM) exploration, although production in CBM fields is not yet significant. Under the Government of Indonesia’s strategic plan issued in 2021, improvement in business climate will result in massive investment in oil production, which is projected to reach 1 MBOPD, and gas production, which is projected to reach 12 BSCFD by 2030. Pertamina, ExxonMobil, ENI, Inpex, COPI, and Chevron are the main players in upstream oil business in Indonesia.

Under Indonesia’s CCS and CCUS regulations, contractors in oil and gas work areas are eligible to propose CCS and CCUS projects in their areas. CO2 sources injected into eligible reservoirs could come from contractors’ operation emissions, third-party emissions such as power plants and cement kilns, or direct capture of CO2. CO2 from overseas is technically possible for both processes. Storage contractors may use reservoirs of depleted oil and gas, non-conventional oil and gas, saline aquifers, and CBM reservoirs.

A contractor proposing a CCS or CCUS project should submit a proposal to SKKMIGAS for assessment. Once a prospective project is deemed feasible, SKKMIGAS will request the approval of the minister of energy and mineral resources so the project can proceed as planned.

A contractor’s proposal should include a feasibility study; project time table; injection, monitoring, measurement, and reporting plans; health and safety and environmental programmes; and decommissioning and closure plan. Contractors are allowed to request fiscal incentives to improve the economics of CCS and CCUS projects. Contractors are permitted to receive financial support from international investors such as through joint credit mechanism and other green financing mechanisms.

To ensure the safety of CCS and CCUS operations, contractors are required to conduct environmental impact analysis, design emergency response plan, and set up a monitoring plan equivalent to the Tier III monitoring plan of the Intergovernmental Panel on Climate Change guidelines that is capable of monitoring leaks from storage facilities. Should leaks occur, contractors shall take appropriate measures to stop them so normal operations can continue. Contractors are allowed to insure their CCS and CCUS facilities.

Per regulations, monitoring shall be conducted continuously until 10 years after the cessation of projects. Contractors shall allot funding for the required monitoring after closure and termination of projects.

A contractor’s responsibility for the project is transferred to the government once the production-sharing contract is terminated. For such transfer, a contractor is required to ensure that CCS and CCUS facilities have been securely closed, with no indication of leaks, and that the contractor has followed good engineering practice to prevent future leaks and failures. This is to be verified by a third-party verification body.

Contractors of CCS/CCUS projects are eligible to trade in the carbon market whenever such market is available. In such circumstances, contractors shall develop measurement, reporting, and verification mechanisms acceptable to market rules. Carbon credit could be shared between the government and contractor and between the contractor and third parties that store their CO2 in the contractor’s facilities. Cross-border CO2 trading is technically allowed under the regulations.

During the drafting of the CCS regulations, the Government of Indonesia invited public participation from local and international parties such as oil companies and industries. Most have expressed appreciation of the content of the regulations covering the most important CCS and CCUS issues. Existing regulations and Presidential Regulation Number 98/2021 on Economic Value of Carbon provide schemes for CCS and CCUS to play important roles in carbon trading. However, the realisation of carbon trading will need carbon trading regulations, which are still under process.

Three CCUS projects are in the pipelines. First is the Gundih CO2 enhanced gas recovery project, which is scheduled to be on stream in 2025, and will store 3 million tonnes of CO2 within 10 years. The second is the Sukowati CO2 enhanced oil recovery project, scheduled to be on stream in 2030 and will store 15 million tonnes of CO2 within 25 years. The third is the Tangguh CO2 enhanced gas recovery project, scheduled to start in 2026 and will store 25 million tonnes of CO2 within 10 years. In addition to the 43 million tonnes of accumulated CO2, Indonesia is expecting more CCUS projects in the medium term such as those to be carried out in Masela and Natuna. Java, Sumatra, East Kalimantan, and Celebes are some of the candidates for these projects although no definitive projects are yet on the pipelines. Recently, Pembangunan Aceh, a company owned by the regional government, signed a memorandum of understanding with ODIN Reservoir Consultant Australia to conduct a feasibility study on a CCS project that would utilise the former 1.3 TCF Arun reservoir of depleted gas.