Indonesia's oil & gas sector must step up decarbonization efforts

The oil and gas industry in Indonesia must step up decarbonization efforts, though a knowledge gap and reluctance to make the necessary investments is holding back the transition. That is according to an analysis of the sector by management consulting firm YCP Solidiance.

Though Indonesia has set a goal of cutting emissions by 40% by 2030, and there is currently $8 billion earmarked for the oil and gas transition, the reality is that the Indonesian energy industry is hesitant to allocate resources to carbon trading initiatives due to high investment costs.

Over the last decade, the oil and gas sector has been the largest energy supplier in Indonesia, but its share has declined in recent years. That is mostly due to a boost in the production other sources of energy, including fossil fuels like coal, but also clean sources like wind and solar.

“The oil and gas sector has contributed 33% of Indonesia’s total energy supply in the last 10 years. However, in recent years, its share has decreased,” the YCP Solidiance report notes.

“The sector with the second-largest energy supply is coal at 22.4%, with a growth rate of 5.9%. In the future, environmentally friendly energy sources such as wind and solar will experience an increase in supply, having experienced a growth trend of 4.5% over the last 10 years.”

One key factor in the energy transition is the need to hit Scope 3 emissions. Those are the notoriously harder-to-reach assets that are not directly controlled by the company in question, but are part of their supply chain.

Only around 10 large global oil and gas companies have committed to reaching net-zero Scope 3 emissions. In Indonesia, there are currently not thought to be any commitments from the oil and gas industry on cleaning up Scope 3 emissions.

Some of the negative effects of failing to act on decarbonization for the Indonesian energy sector include falling behind global competitors, who are acting on market trends for cleaner resources, and losing investment opportunities. Reputational risk is also a growing risk as consumers and investors become more conscious of environmental sustainability.

“As the energy transition leads to a higher demand for renewable and clean energy projects globally, oil and gas players must navigate the transition through human capital development initiatives,” the report notes.