Indonesia holds considerable promise as a carbon storage area and a location for carbon capture on both national and regional scales. If managed and regulated effectively, these potentials could boost investment appeal and yield economic benefits through the carbon capture and storage (“CCS“) process. Following several carbon regulations, Government of Indonesia enacted new regulation for CCS activities by the issuance of Presidential Regulation of the Republic of Indonesia No. 14 of 2024 concerning the Implementation of Carbon Capture and Storage Activities (“PR 14/2024“). The provisions regulated by PR 14/2024 include the following:
1. The implementation of CCS based on a Cooperation Contract / Kontrak Kerja Sama (“KKS”)
The implementation of CCS in certain areas within the Indonesian mining jurisdiction (“Working Area“) is carried out by the contractor under the KKS and is part of the upstream oil & gas operations under the KKS. This KKS can be in the form of (i) production sharing contract with a mechanism for returning operating costs; (ii) gross split profit-sharing contract; or (iii) other cooperation contracts. For contractor who does not contain CCS provisions in their KKS, the CCS provisions can be added into amendments of the KKS.
In connection with the implementation of CCS in the Working Area, the contractor may carry out the utilization of:
- Depleted Reservoir, refers to an oil and gas reservoir that has encountered a reduction in reservoir pressure or
hydrocarbon reserves as a result of oil and gas extraction and is no longer economically viable to produce with
current technology; and - Saline Aquifer Storage, refers to a subsurface rock formation characterized by its porous and permeable nature, containing groundwater with a high salt content or dissolved minerals, and is not utilized for consumption or other purposes.
2. Implementation of CCS based on Exploration License and Storage Operation License
The implementation of CCS in carbon storage license areas is carried out by investors based on exploration licenses and storage operation licenses.
Preparation and Offering of Carbon Storage License Area
In principle, the Minister of Energy & Mineral Resources (“MEMR”) will prepare and designate certain area as the Carbon Storage License Area. Having said that however, the preparation of Carbon Storage License Area could be based on proposals from business entities and permanent establishments/bentuk usaha tetap (“BUT”) or known as unsolicited project. In general, MEMR shall open tender for Carbon Storage License Area proposed by the Government of Indonesia/MEMR and limited tender for Carbon Storage License Area proposed by investors.
Licensing
There are 3 licenses for CCS activities, namely:
(i) Exploration License
The exploration licenses involves activities on data acquisition, drilling, subsurface studies, and mitigation of injection target zone leakage. This license can be owned by a business entity who is established and incorporated in Indonesia or by a permanent establishment/Bentuk Usaha Tetap (BUT) who is established and incorporated outside Indonesia. The validity of this license is for 6 (six) years and can be extended once for a maximum of 4 (four) years.
The exploration license holder presents plan of development and operation if, during exploration activities, the injection target zone is confirmed to possess potential commercial carbon storage capacity.
(ii) Storage Operation License
The Storage Operation License is to conduct carbon injection and storage activities in the Carbon Storage License Area. This license can only be held by a business entity who is established and incorporated in Indonesia. The holder of an exploration license that has obtained approval for plan of development and operation, is entitled to apply a storage operation license to the MEMR. The Storage Operation License is valid for a maximum of 30 (thirty) years and can be extended for a maximum of 20 (twenty) years for each extension.
(iii) Carbon Transportation License
The Carbon Transportation License is for transporting carbon to the injection site handover point. Carbon transportation involves utilization pipes, tracks, ships, or other means in accordance with advancements in science and technology. This carbon transportation business activity can be conducted by (a) a business entity who is established and incorporated in Indonesia or (b) a storage operation license holder after obtaining a carbon transportation license.
Please note that carbon transportation activities that are part of the CCS implementation of KKS contractor shall carry out its activities without obtaining carbon transportation license. Plans for carbon transportation activities that are part of the CCS implementation by KKS contractor are addressed as part of the CCS implementation plan. SKK Migas shall the one who approve the carbon transportation activity plan for this scheme.
Economics or Business Scheme
- The monetization of CCS implementation shall be through storage fees and/or other methods.
- Tax incentives and non-tax incentives can be given to support the implementation of CCS that meets requirements.
- All goods and equipment purchased by KKS contractor for the CCS implementation shall become state property. Otherwise, all goods and equipment purchased by the holder of a storage operation license holder shall belong to themselves.
With the issuance of PR 14/2024, all laws and regulations related to the implementation of CCS remain applicable as long as do not conflict with the provision under PR 14/2024. Previously, CCS is also regulated under the Regulation of Minister of Energy and Mineral Resources No. 2 of 2023 concerning the Implementation of CCS and Carbon Capture, Utilization and Storage (“CCUS“) in upstream oil and gas business activities (“MEMR Reg 2/2023“). MEMR Reg 2/2023 only covers CCS and CCUS in upstream oil and gas business activities, while the scope of CCS regulations in PR 14/2024 is broader, encompassing not only upstream oil and gas business activities.
he information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
