IMI: INDONESIAN NATURAL GAS UPDATE FOR APRIL

SUMMARY: ExxonMobil stopped production of natural gas from its Arun, South Lhoksukon, and Pase gas fields in north Aceh on March 9 as a result of a deteriorating security situation. The resulting loss of natural gas feedstock required Pertamina to shift LNG deliveries from the Arun plant to Bontang, Indonesia’s second LNG plant in East Kalimantan. Earlier, Indonesia established its status as an exporter of piped gas with a January 15 ceremony marking first deliveries of natural gas to Singapore from its West Natuna fields. Pertamina delivered the gas in partnership with a consortium comprised of Canadian-based Gulf Indonesia, U.S.-based Conoco, and U.K.-based Premier. Indonesia further cemented its status as a piped gas exporter with a February 12 contract signing between Pertamina and Singapore’s Sembcorp and a March 29 signing between Pertamina and Malaysian state-owned petroleum company Petronas. Even with these deals, Conoco has a further 500 billion cubic feet of natural gas reserves available from its West Natuna Block B. Indonesia has taken further steps to construct a ninth LNG train at Bontang. Gulf Indonesia has increased its capital expenditure budget for 2001 by 50 percent to US $150 million. End summary.

ExxonMobil Stops Aceh Onshore Production

ExxonMobil Indonesia suspended natural gas production on March 9 from its onshore Arun, South Lhoksukon, and Pase fields in north Aceh due to deteriorating security. Company representatives explained that, while clashes between separatist Free Aceh Movement (GAM) forces and the Indonesian military contributed to an increasingly tenuous situation over the last two years, attacks and harassment were increasingly directed to ExxonMobil facilities and personnel from January 2001. ExxonMobil is engaged in discussions with Pertamina regarding resumption of its operations.

Facilities which depended on ExxonMobil’s natural gas and condensate supplies –the Arun LNG plant, fertilizer plants PT Pupuk Iskandar Muda and PT ASEAN Fertilizer, and the Humpus Aromatics plant -- were also forced drastically to reduce output or suspend operations. ExxonMobil continues to produce 300 million standard cubic feet of gas per day from its North Sumatra Offshore (NSO) field, sufficient to maintain minimal safety and electrical systems at its own operations and the associated facilities. With Arun’s production reduced to a mere trickle, Pertamina said, of the ten cargoes committed from Arun in March, eight were delivered from inventories and the Bontang LNG plant, Indonesia’s second plant in East Kalimantan. Malaysia supplied the remaining two cargoes. 

Pertamina Delivers First Gas to Singapore

Pertamina and Singapore’s SembCorp Gas Pte Ltd celebrated the first delivery of natural gas on January 15, exactly one year after signing a gas sales agreement (GSA). The GSA provides for the supply of 325 million standard cubic feet per day (mmscfd) from Indonesia’s West Natuna fields to Jurong Island and Tuas, Singapore for a period of 22 years. SembGas has a take-or-pay requirement while Pertamina is obliged to invest in specified facilities to deliver a minimum of 12 years of gas whether or not it is economical to do so. Sales revenue is projected to reach US $8 billion over the contract term.

The gas will be delivered from three production blocks –- the West Natuna Sea Block B, operated by Conoco Indonesia; the Kakap Block, operated by Gulf Indonesia Resources; and Natuna Sea Block A, operated by Premier Oil Natuna Sea Limited. The three production sharing contractors (PSC’s), acting as the West Natuna Group (WNG), partnered with Pertamina to form the West Natuna Gas Consortium (WNGC). WNGC invested US $1.5 billion to construct the West Natuna Transportation System, a 656-kilometer underwater pipeline system with six distinct parts and one of the longest underwater pipelines in the world. The pipeline has a current capacity of 700 million standard cubic feet per day with the capacity to expand to one billion standard cubic feet per day with additional gas compression.

Indonesia and Singapore concluded another gas sales agreement February 12 in which Pertamina committed to supply natural gas to Gas Supply Pte Ltd., a Singapore Power subsidiary, via a 500-kilometer pipeline that must be operational in 30 months. Under the terms of the 20-year contract, Pertamina will start selling gas to Singapore in mid-2003 at 150 million cubic feet per day (mmcfd) stepping up to 250 mmcfd by 2009. At current prices, the project will generate US $9 billion dollars in gas sales revenue over its 20-year life, while sales of associated condensate and liquefied petroleum gas (LPG) could bring in another US $4 billion. The gas will be supplied from three fields in South Sumatra –- the Jabung Block operated by Santa Fe, a subsidiary of Oklahoma-based Devon Energy Corporation; and the Corridor and South Jambi B Blocks, both operated by Gulf Resources. Talisman is partnered with Gulf in the Corridor Block, while Amerada Hess and Kerr-McGee are partnered with Santa Fe in the Jabung Block.

Pertamina and Petronas Sign Gas Supply Agreement 

Pertamina President Baihaki Hakim signed a contract March 29 with his Malaysian counterpart, state oil and gas company Petronas President Mohammad Hassan Marican, to deliver natural gas from the West Natuna area to Malaysia. Under the deal, Pertamina will supply Petronas will a total of 1.5 trillion cubic feet (TCF) of natural gas over a 20-year period, generating approximately US $4 billion in gas sales revenue for the West Natuna Block B gas fields operated by Conoco Indonesia. Associated condensate and natural gas liquids will bring another estimated $4 billion.

A subsea pipeline will deliver gas to the Petronas Duyong offshore gas facility by August 2002 at a rate of 100 million cubic feet per day, ramping up to a full volume of 250 mmcfd by 2007. Conoco Indonesia (40 percent), Japanese firm Inpex (35 percent), and Texaco (25 percent) are partnered in the Block B production sharing contract. Conoco and its partners will spend US $2.5 billion to develop Block B further by constructing major production platforms; a 96-kilometer subsea pipeline; a floating production, storage, and offtake (FPSO) vessel; and a liquefied petroleum gas facility. (Note: West Natuna Block B has another 0.5 TCF of uncommitted gas reserves available for further exploitation in addition to the Petronas and SembCorp sales.)

Ninth LNG Train to be Built Soon?

Indonesia has advanced plans to build a ninth LNG train (train I) at the Bontang LNG plant in East Kalimantan with a request for technical bids on a Front End Engineering & Design (FEED) package. Among the bidders are KBR & JGC, Technip & Rekayasa Industri, Chiyoda and IKPT. The Engineering, Procurement, and Construction (EPC) tender is scheduled to be issued at end of 2001. The project is expected to be completed in 2004, with a designed capacity of 3.0 million metric tons per year. The Arun LNG plant’s output was declining even before ExxonMobil’s March suspension of gas production. The new train will support Arun’s existing LNG sales commitments.

Gulf Indonesia Budgets $150 Million for 2001Gulf Indonesia Resources, a 72-percent-owned subsidiary of Gulf Canada Resources, has set a capital expenditure budget of US $150 million for 2001, a jump from $100 million in 2000. Two-thirds of the 2001 budget expenditure will be directed at development opportunities and one-third will be directed toward exploration and delineation activities. Of the $75 million targeted towards natural gas, 80 percent is planned for South Sumatra gas development projects while 20 percent is earmarked for South Sumatra gas exploration and delineation activities. The $75 million directed at oil will be split 50 percent for South Sumatra oil development activities, 40 percent for offshore oil exploration, and 10 percent for other capital requirements.

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