Country
Assessment
Article 128 of Law No. 002/2019 requires oil and gas producers to develop or use suitable techniques for the recovery and re-injection of gas to optimize production and conserve the resource. Article 129 states that future regulations will define methods for controlling the volumes of gas flared and gas discharged and set forth plans to reduce flaring.
In the model PSCs , contract terms for oil are clearly defined, but terms for possible gas discovery or associated gas volumes remain vague (subject to a separate agreement). Article 215 of Law No. 002/2019 reduces the government’s minimum share of profit oil in PSCs to 45 percent for the conventional zone and 40 percent in offshore oil exploitation (against 55 percent and 50 percent, respectively, in the 2014 law). The government’s share of profit gas is 25 percent for the conventional zone and 20 percent for deep offshore zones.
Law No. 002/2019 offers the possibility of removing the corporate tax of 35 percent on the contractor’s share of profit oil in the old law and lowers the proportional mining royalty, which is now 7–15 percent for liquid hydrocarbons produced onshore and 5–12 percent for those offshore. For natural gas, these rates are 5–10 percent onshore and 2– 8 percent offshore. The new legislation also improves cost-recovery terms for operators. The cost-recovery limits for liquids are 70 percent for onshore and 75 percent for offshore; the limits for gas are 80 percent for onshore and 90 percent for offshore.
No evidence regarding the use of market-based principles to reduce flaring, venting, or associated emissions could be found in the sources consulted. However, Ordinance No. 019/2021 relating to climate change (known as the Climate Change Law) lays the foundation for a national carbon credit market and makes these credits eligible for international trading. A national inventory of GHG emissions will collect data from all operators across major sectors, including flaring in the oil and gas industry, fossil-fueled power generation, agriculture, and forestry, with annual Scope 1 and Scope 2 emissions higher than 10,000 tCO2e.
Article 8 of Law No. 002/2019 states that any license holder of an administrative authorization to carry out hydrocarbon activities has access to essential infrastructure, subject to availability and the priority of access granted to certain holders by the DGH. This third-party access is exercised in line with the principles of tariff transparency, equal treatment, and nondiscrimination.
No evidence regarding sector-wide targets and limits could be found in the sources consulted. However, Indonesia does set operational limits on flaring (see section 10 of this case study). Its NDC and the Indonesia Climate Change Sectoral Roadmap set targets to reduce economywide GHG emissions.
Articles 1 and 16 of ESDM 17/2021 assign overall responsibility and approval powers for flaring permission and reporting activities to the ESDM and DG Migas. According to Article 1(20) (also, Article 1[11] of ESDM 30/2021; see footnote 7]), a special work unit (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi [SKK Migas]) is responsible for managing upstream oil and gas activities under the guidance and supervision of the ESDM. According to Article 1(21)—and also, Article 1(12) of ESDM 30/2021—Aceh Oil and Gas Management Agency (Badan Pengelola Migas Aceh [BPMA]) has joint responsibility for managing upstream oil and gas activities in the Aceh territory, including within 12 nautical miles of coastal waters.
Article 4 of ESDM 17/2021 lists the circumstances for and types of flaring events: routine, nonroutine, safety, emergency, instances when impure gas exceeds a 50 percent share, and flaring due to commercialization issues. Article 7 of ESDM 17/2021 lists the activities that qualify for nonroutine flaring; these include exploration and appraisal drilling, well testing and maintenance, and pressure relief. Article 9 requires contractors to make efforts to stop flaring in case of emergency situations or when safety is at risk. Processing business permit holders must make efforts to stop flaring during maintenance activities such as depressurizing. These efforts must be reported to DG Migas in writing, along with a plan to stop flaring and mitigate a recurrence through preventative efforts.
In case a single flaring incident lasts more than a day and exceeds an average daily volume of 20 million standard cubic feet (mmscf), contractors with processing business permits must report online to the chief inspector within 24 hours of the incident and a written report must be submitted to DG Migas within seven days after the end of the incident (Article 6 of ESDM 17/2021).
Article 5 of ESDM 17/2021 sets DG Migas–authorized routine gas flaring volume limits of 2 mmscf per day (six-month field average) in an oil field, and 3 percent of the daily volumetric feed gas flow rate of a natural gas field.
Processing business permit holders are not allowed to flare routinely. These companies must design refineries and processing plants without routine flaring.
For flaring due to gas commercialization issues, contractors must report their challenges to SKK Migas or the BPMA, along with plans to utilize gas (Article 10 of ESDM 17/2021). SKK Migas or the BPMA will review the contractors’ reports and submit recommendations to the minister (DG Migas), who will decide the status of the flared gas.
Article 2 of ESDM 17/2021 requires contractors and processing business permit holders to manage flare gas. Upstream contractors must prepare a flare gas management plan as part of field development plans. As per Article 17, contractors and processing business permit holders must submit their flare gas management plans to DG Migas every six months. The submissions must follow the format provided in the appendix of ESDM 17/2021. Article 15 enables contractors or processing business permit holders to flare or utilize flare gas collaboratively under the coordination of SKK Migas or the BPMA. This cooperation is intended to reduce the costs of individual companies and accelerate the mitigation of flaring. These collaborative activities must be reported to DG Migas.
Article 3 of ESDM 17/2021 requires contractors and processing business permit holders to prioritize the utilization of flare gas. According to Article 4 of ESDM 17/2021, economic and technical studies must demonstrate that the utilization of low-combustion gas or gas with an impure gas share exceeding 50 percent is not feasible, and those volumes must be flared. Article 3 of ESDM 30/2021 requires contractors requesting a utilization of flare gas determination to provide technical, commercial, and financial documents and a copy of the price agreement with the flare gas buyer.