Policy and Targets
Background and the Role of Reductions in Meeting Environmental and Economic Objectives
The volume of gas flared in Indonesia decreased from 3.5 bcm in 2012 to 1.7 bcm in 2021. The rate of decline was much greater than for oil production, which fell by more than 20 percent during the period. The flaring intensity correspondingly followed a generally declining trend, falling by more than oil production. There were 152 individual flare sites in the last flare count, conducted in 2019.
Gas flaring volume and intensity in Indonesia, 2012–21
Indonesia endorsed the World Bank’s Zero Routine Flaring by 2030 initiative in 2017 (World Bank, n.d.). It also participates in the Global Methane Initiative (n.d.). In 2021, Indonesia submitted an updated NDC to the UNFCCC that committed it to an unconditional reduction of 29 percent and a conditional reduction of 41 percent in GHG emissions by 2030 relative to its business-as-usual scenario. The NDC does not mention flaring or venting.
In 2010, the government launched the Indonesia Climate Change Sectoral Roadmap, an initiative to incorporate the climate change agenda in the country’s development plan. In 2012, the Ministry of Energy and Mineral Resources (Kementerian Energi Dan Sumber Daya Mineral [ESDM]) issued specific flaring regulations to optimize resource utilization and reduce flaring and GHG emissions. Building upon these efforts, the government in 2017 issued the National Energy Strategy, which included a transition to a cleaner, more climate-smart energy sector.
Targets and Limits
No evidence regarding sector-wide targets and limits could be found in the sources consulted. However, Indonesia does set operational limits on flaring (see the Authorized Flaring or Venting section of this case study). Its NDC and the Indonesia Climate Change Sectoral Roadmap set targets to reduce economy-wide GHG emissions.
Legal, Regulatory Framework, and Contractual rights
Primary and Secondary Legislation and Regulation
Articles 2 and 3 of the 2001 Oil and Gas Law, Law 22/2001, cover the environmental considerations relevant to the country’s oil and gas industry.
Ministerial regulation ESDM 31/2012 regulates gas flaring. It assigns overall flaring responsibility to the ESDM and its directorate, the Directorate General of Oil and Gas (DG Migas). ESDM 31/2012 covers the conditions under which flaring is permitted, procedures to follow in all instances of gas flaring, and metering and reporting requirements (see the Flaring or Venting without Prior Approval, and Authorized Flaring or Venting sections of this case study).
The primary objective of ESDM 32/2017 is to optimize resource use, by increasing the use of otherwise flared gas (Article 2). In Article 1, the country’s Special Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak Dan Gas Bumi [SKK Migas]) is given responsibility for the business aspects. In this context, SKK Migas is tasked with marketing gas that might otherwise be flared and setting the price of this gas.
Government Regulation 35/2004, issued by the president of Indonesia, regulates business activities related to the upstream oil and gas sector without any specific mention of flaring or venting. Although not directly aimed at flaring and venting of associated gas, several regulations lay the foundations for the pricing of gas sold to other sectors:
- Government Regulation 36/2004 regulates gas use in the downstream sector, defined as processing, transport, and storage of gas.
- Ministerial regulations ESDM 58/2017 and ESDM 14/2019 establish the pricing mechanisms for gas transported by pipeline sold on the domestic market.
- Ministerial regulation ESDM 45/2017 covers the use of gas for electricity generation, such as volume allocation for national purposes (Article 3) or price setting, for which Article 8 of the amendment ESDM 10/2020 provides numerical updates.
Gas flaring is a matter of national jurisdiction.
Associated Gas Ownership
Article 6 of Law 22/2001 and Article 24 of Government Regulation 35/2004 state that ownership of gas remains entirely with the government until the point of delivery, when the contractor assumes ownership of cost oil and gas and the contractual share of profit oil and gas. Ownership of gas not sold, including associated gas, remains with the government. Gas-related business activities, including the transfer of ownership, are covered in the cooperation contracts, a type of agreement specific to Indonesia that closely follows the industry practice established for PSCs. In line with the above, Articles 4–8 of ESDM 32/2017 authorize SKK Migas to conduct the sales process through a bidding mechanism for gas that would otherwise have been flared.
Regulatory Governance and Organization
Articles 1 and 9 of ESDM 31/2012 assign overall responsibility and approval powers for flaring permission and reporting activities to the ESDM and DG Migas. Article 1 of ESDM 32/2017 appoints SKK Migas as the country’s special task force for managing upstream oil and gas activities under cooperation contracts, making it responsible for the utilization of gas that would otherwise have been flared. Although not an institution within the ESDM, SKK Migas is under the guidance and supervision of the ESDM.
Regulatory Mandates and Responsibilities
Flaring-related responsibilities are divided between the ESDM (including DG Migas) and SKK Migas. According to ESDM 31/2012, the ESDM sets the policy direction and DG Migas formulates and implements policies and technical standards (Article 1). Regarding the use of gas that might otherwise have been flared, Article 1 of ESDM 32/2017 appoints SKK Migas as the agency responsible for managing the bidding process for the associated gas currently being flared under the guidance and supervision of the ESDM (see the Use of Market-Based Principles section of this case study). According to ESDM 45/2017, in combination with the amendment in Article 8 of ESDM 10/2020, the ESDM is also responsible for overseeing natural gas used in electricity generation.
Monitoring and Enforcement
If flaring limits are exceeded, the contractor or license holder is required to conduct a gas optimization study for submission to DG Migas, which can then either approve or reject its findings (Articles 3–5 of ESDM 31/2012). SKK Migas is entitled to revoke the utilization license for gas previously or otherwise flared if the promised implementation commitment is not met in time (Article 10 of ESDM 32/2017).
Flaring or Venting without Prior Approval
Article 6 of ESDM 31/2012 allows flaring without the prior submission of a gas optimization study if it is done is for safety reasons, because of an emergency, or as part of well testing. However, the ESDM’s inspection service needs to be notified within 24 hours of the incident, and a written report must be submitted to DG Migas for subsequent verification purposes.
Authorized Flaring or Venting
Article 3 of ESDM 31/2012 sets the following volume limitations on gas flaring authorized by DG Migas:
- 3 percent of the field’s gas production
- 5 mmscf a day (six-month field average) in a field
- 0.3 percent of gas-processing facility intake
- 0.8 percent of refinery intake.
If the above limits are exceeded, Articles 4 and 5 of ESDM 31/2012 require contractors or license holders to conduct a gas optimization study and submit it to DG Migas for evaluation, based on which DG Migas can approve operational flaring. DG Migas is required to provide reasons for rejecting the submission.
Unless flaring is permitted, associated gas is usually not covered by cooperation contracts and, therefore, not part of field development plans. However, each cooperation contract must contain environmental management provisions (Article 11 of Law 22/2001 and Article 39 of Government Regulation 35/2004), although they are not required to include flaring and venting according to the existing legislation.
Article 4 of ESDM 31/2012 requires contractors or license holders to conduct a comprehensive gas optimization study when exceeding the permissible flare gas volumes. Article 5 requires DG Migas to evaluate this study before approving or rejecting flaring permits. Article 7 of ESDM 32/2017 requires bidders for associated gas currently being flared to provide technical, commercial, and financial parameters when competing for gas volumes. SKK Migas evaluates the bid proposals and makes recommendations on bid selection to the ESDM.
Measurement and Reporting
Measurement and Reporting Requirements
Article 7 of ESDM 31/2012 sets metering requirements for flared gas. Specifically, it requires meters to be used if flaring more than 3 mmscf a day per facility and in all cases if sour gas is being flared. If flaring less than 3 mmscf a day or if the meter on site cannot read measurements, the operator can calculate the volume of gas flared instead of metering it. Article 8 requires the submission of regular gas flaring reports.
Measurement Frequency and Methods
According to Article 8 of ESDM 31/2012, contractors or license holders are required to submit regular flaring reports to DG Migas every six months. These reports must cover items such as flare gas volumes and countermeasures.
Article 7 of ESDM 31/2012 permits calculated flare gas volumes for gas other than sour gas below the threshold of 3 mmscf a day per facility or if the installed meter is not working properly. In the event of an irregularity or a failure to report, DG Migas requires that a meter be installed.
There is no obligation to maintain logs outside of the standard reporting requirements.
Data Compilation and Publishing
DG Migas receives gas flaring reports regularly and is known to be willing to share them upon request on a case-by-case basis. DG Migas does not formally or regularly publish flaring-related statistics.
Fines, Penalties, and Sanctions
No evidence regarding monetary penalties could be found in the sources consulted.
Articles 4 and 5 of ESDM 31/2012 require contractors or license holders that exceed the limits allowed for flaring in Article 3 to conduct a gas optimization study for submission to DG Migas, which can then approve or reject the findings. Article 10 of ESDM 32/2017 allows SKK Migas to revoke the flare gas allocation from the selected bidder if they fail to commence work within three months following the award or fail to start production within 12 months. However, there are no known cases of revocation.
The only performance standards identified relate to the requirement to start production and flare gas utilization within 12 months of the award date in the bid rounds conducted by SKK Migas for gas being flared. There is no mention of an emission standard to be achieved.
Fiscal and Emission Reduction Incentives
No evidence regarding fiscal and emission reduction incentives could be found in the sources consulted.
Use of Market-Based Principles
Article 7 of ESDM 32/2017 appoints SKK Migas to sell gas currently being flared through a bidding process. The bid parameters include the price the bidder is willing to pay, investment commitment, and the production period. Based on an evaluation of the bid parameters, SKK Migas makes recommendations to the EDSM, which selects the bid winner. The gas price offered by bidders has a ceiling of US$0.35/mmBtu for bidders that are public entities and US$3.67/MMBtu for private entities. All prices are subject to correction factors based on the content of the contaminants. Given the significant difference in bid price ceilings, the other project parameters would need to be very attractive to attract private sector interest.
Negotiated Agreements between the Public and the Private Sector
No evidence regarding negotiated agreements between the public and the private sector could be found in the sources consulted.
Interplay with Midstream and Downstream Regulatory Framework
Several regulations relate to the transport and pricing of gas that is sold to other sectors further downstream (see the Primary and Secondary Legislation and Regulation section of this case study). Downstream activities are supervised by a separate regulatory agency, BPH Migas. Article 31 of Government Regulation 36/2004 requires midstream and downstream license holders to make surplus facility capacity available to third parties, which would help integrate flare gas commercialization projects.