Indonesia battles oil production slump with bold new drilling plans

[JAKARTA] Indonesia is banking on 75 newly offered oil and gas blocks to stem its declining domestic output, but analysts warn that the boost may be short-lived unless deeper investment and structural reforms follow.

The government hopes the expanded portfolio will help lift production to 605,000 barrels a day this year and eventually reach its longstanding target of one million barrels by 2030.

But with more than half of Indonesia’s crude oil needs already met through imports and demand still rising, the stakes are high if these new blocks fail to deliver.

Prateek Pandey, senior vice-president and head of Asia-Pacific oil and gas analysis at Rystad Energy, said that Indonesia’s target, while ambitious, is not out of reach if the right pieces fall into place.

“Production upside brings a short-term momentum. But the real challenge isn’t reaching 605,000 barrels; it’s sustaining it,” he told The Business Times.

New blocks to drill

Of the 75 blocks offered, 61 are currently open for bidding. These include resource-rich but underexplored areas such as Seram-Aru and Cenderawasih Bay II and III in the Maluku and Papua regions, which officials hope will attract long-term investment and help diversify the national production base beyond traditional oil and gas hubs.

The government has also identified 14 more areas for future licensing rounds, including Bukit Barat, Halmahera-Kofiau, Semai IV, and Akimeugah.

Deputy Minister of Energy and Mineral Resources Yuliot Tanjung said on Jul 8 that the blocks are being offered under production-sharing contracts (PSCs), which allow companies to recover their exploration and development costs before sharing profits with the government.

He added that some blocks already have winning bidders, while others remain open for bidding or are being prepared for future tenders.

Rikky Rahmat Firdaus, deputy for exploration in the Upstream Oil and Gas Regulatory Task Force, said that Malaysia’s Petronas and Total E&P Indonesie will begin exploration drilling next year in the Bobara Block, a 8,500 square kilometre oil field in Papua.

Firdaus pointed out that Indonesia could see additional production this year from two oil and gas blocks, including state-owned energy firm Pertamina’s existing assets such as ExxonMobil’s Cepu Block, which may contribute around 30,000 barrels a day. Further gains are expected from newer fields such as Forel and Terubuk, which are projected to add another 20,000 barrels per day combined.

Declining output

Once a major oil producer, Indonesia has seen a steady decline in domestic output, leaving the country increasingly reliant on imports to meet its energy needs.

In the 1990s, oil and gas production peaked at around 1.5 million barrels a day, but output has since dropped significantly.

Komaidi Notonegoro, executive director of the Jakarta-based think tank ReforMiner Institute, said the country’s upstream oil and gas industry has been grappling with increasingly complex challenges in recent years.

He noted that a key concern is Indonesia’s heavy reliance on ageing wells, with around 52 per cent of the output coming from mature fields nearing the end of their productive life.

Reversing the downward trend in domestic output is no easy feat, said Komaidi, as it requires balancing the economic viability of upstream projects with the government’s fiscal limitations, a delicate act of walking a tightrope between industry needs and state finances.

“In general, managing oil and gas fields in the mature phase requires special treatment, as production and maintenance costs tend to rise while output continues to decline,” he noted.

Pandey from Rystad Energy said that most of Indonesia’s recent oil and gas block awards have reverted to the cost-recovery PSC model, marking a shift away from the gross split scheme introduced in 2017.

The cost-recovery model is seen as more appealing in today’s uncertain market.

“While fiscal terms are generally not seen as a major obstacle, above-ground risks and domestic-market dynamics continue to weigh heavily on the commercial viability of projects,” he said, pointing to investor caution amid unstable Brent prices in 2025.

Operators, he added, are becoming increasingly hesitant to invest in both brownfield developments and high-risk exploration.

Energy security

Indonesian President Prabowo Subianto has placed energy security at the heart of his economic agenda, vowing to reduce import dependence and ramp up domestic oil production.

The push is not only about securing supply, but also about curbing rising energy import bills and easing long-term fiscal pressures. Indonesia’s fuel subsidy amounted to 500 trillion rupiah (S$39.4 billion) last year.

The country currently consumes around 1.6 million barrels of oil a day, with domestic production accounting for only 600,000 barrels, while the remaining one million barrels are met through imports.

Dr Yayan Satyakti, a lecturer and researcher at Padjadjaran University, warned that the growing gap between domestic supply and demand would not only erode energy resilience but also carry broader economic, fiscal, and geopolitical consequences for Indonesia.

“Higher energy imports mean more spending in foreign currency, potentially worsening Indonesia’s current account balance and putting pressure on the rupiah,” Dr Yayan said.

Pandey noted that, amid rising geopolitical tensions that could fuel energy price volatility, countries around the world are re-evaluating their domestic oil and gas potential and Indonesia is no exception.

The South-east Asian nation is also seeking to buy more crude oil from the US, part of its broader negotiation with Washington to lower the 32 per cent import tariff that is still under review. While this effort will remain relevant, domestic potential is likely to take priority, said Pandey.