An employee of PT Perusahaan Gas Negara examines the gas distribution regulator at Kalisogo gas station in Sidoarjo, Indonesia's East Java province.
Indonesia's challenging task of further exploiting its aging oil and gas fields and facilitating exploration in new reserves, which are located in remote and technically challenging areas, gives Chinese oil and gas companies a good chance to further tap the market potential, analysts said.
"Indonesia's rich gas resources have been very attractive to Chinese firms including China National Petroleum Corp, the country's biggest oil producer," said Li Li, energy research director at energy consulting firm ICIS China.
"However, the country's natural gas markets currently face substantial challenges as existing gas fields age, upstream output declines and investment falls," despite" fast rising gas demand driven by growing consumption from the power and industrial sectors."
In addition, the country's new reserves are located in deep water and other challenging locations, and international companies have been rolling back plans for high-risk exploration.
But all of these factors actually provide Chinese companies a fair chance to broaden their business in the country, she added.
According to S&P Global Platts, Indonesia is rich in resources such as natural gas and is a major liquefied natural gas supplier, with the Bontang, Tangguh and Donggi Senoro facilities producing 18.83 million metric tons of LNG in 2016. But the country lacks infrastructure to connect surplus gas areas to rural areas across a sprawling archipelago of more than 18,000 islands.
The International Energy Agency recently slashed Indonesia's 2040 natural gas production forecast to 90 billion cubic meters－down by 45 bcm from its previous outlook published in 2015－citing constraints in the development of East Natuna, Asia's largest untapped gas field off the coast of West Kalimantan, amid low LNG prices globally.
Abache Abreu, senior editor of LNG News and Analysis of S&P Global Platts, said Indonesia's exploration and production sector has been grappling with falling investment, due to four years of sustained low oil prices, excessive bureaucracy, legal uncertainty, unattractive fiscal terms and the absence of reliable resource data.
The sector's competitiveness has been further affected by a rise in global competition, as more countries are stepping up efforts to attract capital investment amid a downturn in the sector, he said.
Indonesia's upstream investment fell 27 percent to .15 billion in 2016 from .34 billion in 2015, and exploration shrank to 199 areas from 228 over the same period, according to upstream regulator SKK Migas.
Against that backdrop, China's CNPC, which has an edge in enhanced oil recovery, could take advantage of the technology to assist local gas fields in Indonesia's oil and gas developments and infrastructure building, Li said.
Enhanced oil recovery is the implementation of various techniques for increasing the amount of crude oil that can be extracted from an oil field, and CNPC has been a pioneer in the technique.