Indonesia Introduces CCs and CCUS Regulations

ESG & Climate Change

21 Sept

Written By ARMA Admin

Authors

Authors

Rudi Bachtiar

Partner

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The Indonesian Minister of Energy and Mineral Resources (“MEMR”) has issued MEMR Regulation No. 2 of 2023 on the Implementation of Carbon Capture and Storage (“CCS”) and Carbon Capture, Utilization, and Storage (“CCUS”) in Upstream Oil and Gas Business Activities (“MEMR Reg 2/2023”).

MEMR Reg 2/2023 supports Indonesia's commitment to achieve carbon neutrality by 2060 by allowing upstream oil and natural gas contractors to store, utilize, and/or monetize carbon emissions. CCS and CCUS are similar but have distinct characteristics. CCS reduces carbon emissions by capturing, compressing, and permanently injecting the captured carbon into a specific location. In contrast, CCUS would use the captured carbon to create products such as plastics, concrete, or biofuel.

CCS and CCUS are both promising technologies that have the potential to play a significant role in reducing carbon emissions. Currently, there are 15 CCS/CCUS projects in Indonesia that are still in the study and preparation stages. Most are targeted to operate before 2030. The 15 projects are as follows: (i) Arun (CCS); (ii) Gemah (CCUS, EOR); (iii) Ramba (CCUS, EOR); (iv) Jatibarang (CCUS, CO2, EOR); (v) Central Sumatra Basin (CCS, CCUS Hub); (vi) Sakakemang (CCS); (vii) Gandih (CCUS, EOR); (viii) RU V Balikpapan (CCU, Methanol); (ix) Kutai Basin (CCS, CCUS Hub); (x) Sunda Asri Basin (CCS, CCUS Hub); (xi) Sukowati (CCUS, EOR); (xii) East Kalimantan (CCS, CCUS Study); (xiii) Blue (Ammonia, CCS); (xiv) Abadi (CCS, CCUS); (xv) Lapangan Tangguh (CCUS, EOR).

This ARMA update will cover key points and takeaways from the MEMR Reg 2/2023.

Implementation of CCS and CCUS

CCS is an effort to reduce greenhouse gas (“GHG”) emissions through the injection and storage of carbon emissions in the oil and gas exploration and exploitation working area (“Working Area”). Meanwhile, the CCUS is an effort to reduce GHG emissions and increase oil and gas production through the injection, utilization, and storage of carbon emissions in the Working Area. ¹ The injection, utilization, and storage of such carbon emissions in the Working Areas are preceded by carbon emission capture and/or transport activities. ²

The implementation of the CCS/CCUS activities can be divided into the following stages:

Planning phase

MEMR Reg 2/2023 requires the contractor of an oil and gas project to submit an initial development plan for the CCS/CCUS implementation to the MEMR, through the Special Working Unit for the Organization of Offshore Oil-and-Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi or “SKK Migas”) or the Aceh Oil-and-Gas Organizational Body (Badan Pengelola Migas Aceh or “BPMA”). If the CCS/CCUS implementation plan is a subsequent development plan, then it is submitted to the SKK Migas or BPMA. ³

The development plan must provide studies on geology, geophysics, reservoir, transportation, storage, injection operations, economy, engineering, safety, environment, evaluation and risk mitigation, monitoring, and Measurement, Reporting, and Verification (“MRV”), where the studies must be performed in accordance with relevant standards for respective assessments. ⁴ Furthermore, the development plan will then be submitted to obtain approval from relevant bodies. If the development plan is an initial plan, then it will be assessed by MEMR, while also considering the suggestions from SKK Migas or BPMA. ⁵ If the development plan is part of a subsequent plan, then it will be assessed by the SKK Migas or BPMA. ⁶

Execution phase

A contractor is allowed to commence CCS/CCUS after the approval of the development plan. ⁷ MEMR Reg 2/2023 requires the implementation of CCS/CCUS to be carried out as follows:
1. Providing documents on the mitigation and handling of environmental impact, social, and public involvement;
2. The process of engineering, procurement, and construction;
3. Commissioning and CCS/CCUS operations;
4. Implementation of health and safety during the operation of CCS/CCUS;
5. Environmental management;
6. Implementation of emergency response activities;
7. Implementation of service and maintenance;
8. Implementation of monitoring and MRV; and
9. Closure of CCS/CCUS activities.

Further, goods and equipment that are purchased by the Contractor to perform CCS/CCUS activities would become State property. ⁸

Decommissioning phase

The closure of CCS/CCUS may occur due to these conditions: ⁹
1. The capacity of the injection zone has reached its limit;
2. There is no carbon emission to be injected;
3. The contract has lapsed and has not been extended;
4. There exist unsafe conditions; or
5. Force majeure.
The contractor must submit its decommissioning plan to the MEMR through SKK Migas or BPMA. ¹⁰ The decommissioning plan must include:
1. Information on a reservoir, equipment, installation, facilities, and also the well that is used for CCS/CCUS closure;
2. Total reduction of carbon emissions;
3. Cost estimation;
4. Closure timeline; and
5. Prevention plan on environmental damage, danger to humans, damage to resources, and damage to equipment, installation, and facility.

Cooperation

Based on the approval from the MEMR, the contractor may inject or store carbon emissions from third parties in its Working Area. This arrangement can be based on a cooperation agreement between the contractor and such third party, with consideration to the technical, carbon emission reduction, economic, and security of its operations. Such cooperation agreement is submitted to the SKK Migas or BPMA to obtain consideration and approval, which will be regulated further in a work procedure guideline. ¹¹

Monitoring and MRV

The contractor must monitor the safety of the worker, installation, equipment, environment, and public safety. The said obligations must be carried out from the approval of the CCS/CCUS development plan until 10 (ten) years after the closure of CCS/CCUS. ¹² Furthermore, the contractor must provide a monitoring reserve fund for the period of 10 (ten) years after the closure of CCS/CCUS. ¹³

Besides monitoring obligations, the contractor must carry out MRV throughout the period of CCS/CCUS activities. The contractor must provide a periodical report every 6 (six) months to the Directorate General of Oil and Gas of the MEMR through the SKK Migas or BPMA. ¹⁴

The contractor is obliged to measure the carbon emissions and the operation parameters of CCS/CCUS at least once a year. ¹⁵ Furthermore, the reporting requirement must consist of the following general information: (i) the contractor’s identity; (ii) the title and type of activity; (iii) the mechanism of CCS/CCUS activity and the usage of economic carbon value; and (iv) technology transfer, capacity building, and financing. ¹⁶

For the technical report, the contractor must submit (i) the calculation of the amount of baseline greenhouse gasses (“GHG”) emissions; (ii) the selection of the reference period in the framework of the GHG emissions baseline; (iii) the method of carbon emissions reduction; (iv) the results of activities monitoring; and (v) the managerial systems of the CCS/CCUS implementation.

The technical report submitted by the contractor will be assessed by the MEMR, where the assessment can be carried out by an independent institution that the MEMR appoints. ¹⁷ In regard to the appointment of an assessor, MEMR Reg 2/2023 prioritizes local assessment institutions, which process refer to the applicable law and regulations. ¹⁸

Monetization of CCS/CCUS

MEMR Reg 2/2023 allows CCS/CCUS activities deriving from upstream oil-and-gas activities to be monetized out from carbon trading and/or the reimbursement of operational costs from the joint facilities. ¹⁹ Further, if the carbon emissions do not derive from upstream oil-and-gas activities, the CCUS activities can be monetized through the services of injection and storage. ²⁰

Administrative Sanctions

The MEMR Reg 2/2023 contains administrative sanctions for non-compliance to the obligation of periodical monitoring reports, measurement, and providing emergency response systems to address hazardous conditions that are potentially harmful to the safety of the worker, installation and equipment, environmental, and/or public safety. Such administrative sanctions can be imposed in the form of a written warning and temporary suspension of the CCS/CCUS activity. ²¹

The sanction in the form of a written warning is given at a maximum of 3 (three) times with 30 (thirty) calendar days intervals. If, after 3 (three) written warnings the contractor does not carry out its obligations, the CCS/CCUS activity shall be temporarily suspended. However, the suspension shall be lifted once the contractor fulfills its obligations. ²²

For more information and assistance on this matter, please get in touch with the Authors.

Articles 3 and 4 of MEMR Reg 2/2023↩
Article 5 of MEMR e/2023↩
Article 11 (2) of MEMR Reg 2/2023↩
Article 12 (2) of MEMR Reg 2/2023↩
Article 16 (1) of MEMR Reg 2/2023↩
Article 16 (2) of MEMR Reg 2/2023↩
Article 19 (1) of MEMR Reg 2/2023↩
Article 45 (1) of MEMR Reg 2/2023↩
Article 22 of MEMR Reg 2/2023↩
Article 23 of MEMR Reg 2/2023↩
Article 20 of MEMR Reg 2/2023↩
Article 27 of MEMR Reg 2/2023↩
Article 27 of MEMR Reg 2/2023↩
Article 30 of MEMR Reg 2/2023↩
Article 34 of MEMR Reg 2/2023↩
Article 35 of MEMR Reg 2/2023↩
Article 36 of MEMR Reg 2/2023↩
Article 36 of MEMR Reg 2/2023↩
Article 42 of MEMR Reg 2/2023↩
Article 42 of MEMR Reg 2/2023↩
Article 56 of MEMR Reg 2/2023↩
Article 57 of MEMR Reg 2/2023↩

Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.