How did your career background lead towards the development of Star Energy?
I started my career in 1986 with Bank Niaga, an Indonesian commercial bank. I spent 10 years working there before moving to Danareksa, a state-owned investment bank. From there I went on to start my own business with partners and formed Nusantara Capital, which took over the ConocoPhillips tenement in 2003. The oil price was very low at that time, between $9 and $11 USD per barrel, so all the major oil producers were shedding assets.
Initially we took a 31.25% stake in the Kakap production sharing contract (PSC) in the Natuna Sea. We expanded this in 2009 when we bought Santos’ shares, leaving us with a 56.25% stake. Now we have additional oil and gas exploration blocks including Sekayu and Sebatik, located in East Kalimantan and South Sumatra respectively.
In addition to these oil and gas holdings, in 2004 Star Energy took over the Wayang Windu project in West Java to operate geothermal assets. We have since worked to develop this site and in February 2009, we had a major breakthrough when we built our own additional geothermal power unit. As a result, since this time we are operating two units at Wayang Windu, supplying Indonesia with more electricity generated through clean, green renewable means.
What geothermal operations is Star Energy concentrating on?
As I mentioned, at Wayang Windu, our turbines both use the single flash system. This works with dry steam, which is injected into the turbine at very low pressure, around 10bar, moving the turbine because of the temperature gradient between the steam injector and the cooling system. This technology requires very long diameter rotor blades, which in turn is very expensive. In fact, the investment in a green field project utilizing this system usually costs around $4.5 million USD per megawatt.
Does the tariff system affect your plans for the development of the asset?
Yes, it has a significant affect. We are very keen to contribute to Indonesia’s electricity needs, but like any other business we need to be compensated with appropriate tariff. Unfortunately, under the current tariff, it is impossible for us to invest in the new project.
The good thing is we have some of the best-proven reserves in Indonesia and when conditions improve we will be ready to expand our operations. Currently we have Unit 1 producing 110 megawatts, Unit 2 producing 117 megawatts and we are planning to build Unit 3 which will generate 60 megawatts. We anticipate that a fourth unit could be developed for a further 60 megawatts.
What is the predicted life of Star Energy’s geothermal energy resources?
For each field we predict that there are around 30 years of reserves. However, this is quite imprecise for green field projects it is difficult to pinpoint the exact subsurface capacity condition. As we have operated since June 2000, from 50 wells, we understand the conditions in the subsurface, better than one would in the case of green field projects. Projects like ours are called brown field projects because they have been in operation for some time. We have dynamic and modelling to predict of how the subsurface looks so we can simulate what is going on below. We can determine the impact of different well configurations.
However, in our new project, the models are a little rough and we have to test them with drilling to assess temperature and the soil type. Life is added to each well by re-injecting the steam/fluid. It is important to have injecting as well as producing wells because the fluid extracted from the earth, the brine, needs to be returned through injection, which also recharges the reserve. But, we cannot inject too much water as it might cool the entire system down, and we need to be careful about pressure loss.
Over what time period do you start to see a return on investment for geothermal energy projects?
You begin to receive a return on investment 8-10 years into production, depending on the tariff. Maintenance costs are significant, initially every well costs $8 - $10 million USD to drill, and you need to spend a further $3 to $4 million USD on maintaining existing wells every year. These sorts of costs make expansion unviable with the current tariffs. However, the new tariffs coming in will be much better. As a pioneer, we are actually penalized by the government, but we are negotiating a new tariff for Star Energy.
Because all the costs for geothermal projects are up front there is significant risk in investment. This is compounded by the fact that when we bid, we fix the tariff, so we cannot pass on ongoing costs. The new laws open a window for adjustments and a developer will be able to negotiate business to business. Geothermal is one of the best renewable energy sources because it can supply a constant base load, unlike seasonal sources, such as hydropower and wind power.
How would you describe the human resources market in Indonesia’s geothermal industry?
It is tight at the moment, as we have to compete with the oil and gas sector for services such as drilling. This makes things very expensive and we really don’t have enough specialists working in geothermal. We are trying to remedy our limited human resources through partnership with The Bandung Institute of Technology (ITB) sponsoring a geothermal program to produce the specialists we require. Currently we rely on consultants, paring them with locals so they can learn and do the job internally. We have evolved from this and now we can gather all the information internally and then test it with a consultant. In terms of human resources we want long-term employees. This is vital for business.
What does the next president and his cabinet ministers have to do to encourage more utilization of Indonesia’s renewable energy resources by the private sector?
More than anything we want consistency from government, every new piece of legislation comes with positives and negatives. The implementation will be the real test, but we are happy so far because there has been good consultation with the all stakeholders. Geothermal energy is logical for Indonesia because in the future we cannot afford to rely on fossil fuels. But to get the investment levels required to promote change to renewable energies, there needs to be big political will. The government has long term goals but it hasn’t really done much in the way of working out how to fulfill the targets.
How do you see Star Energy’s future with regards to the broader oil and gas operations?
With oil and gas prices as they are, we are very committed to expansion. We have excellent opportunities in our exploration blocks and we are preparing to drill 2 infill wells this year. In 2016 we will drill 3 or 4 wells for exploration, to prove our additional reserves. Our aim is to confirm additional 127 million barrel reserve by 2016. This sounds ambitious, but we believe that we have significant existing potential that, when utilized, will meet this target. We are also interested in buying existing assets to achieve this goal.
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