ENERGY NEWS

Indonesian 2001 Natural Gas Developments

SUMMARY

Indonesia confirmed its new status as an exporter of piped natural  gas with the delivery in 2001 of 32 billion cubic feet to Singapore. Indonesia's electric power producers reduced natural gas consumption in 2001. State electricity company PLN switched several power generation stations to diesel as a result of declining natural gas production from BP's offshore Kangean field. At the same time, BP and Pertamina are negotiating terms to allow other natural gas producers, including U.S. company Amerada Hess, to deliver to East Java consumers. Fertilizer plants' utilization of natural gas was down in 2001, while residential and other commercial uses were up. State pipeline company PGN selected a Petronas-led consortium as its strategic partner in the construction of a second pipeline from South Sumatra to supply natural gas to Singapore. End summary.

Natural Gas Usage

Indonesia, which traditionally exports gas in the form of LNG (about 53 percent of total production), started exporting piped natural gas to Singapore in 2001. Exports for the year totaled 32 billion standard cubic feet (SCF), which originated from several fields in West Natuna operated by three Production Sharing Contractors (PSCs) -- Conoco, Gulf Indonesia Resources and Premier. Under terms of a January 1999 gas sales agreement between Pertamina and Singapore-based Sembawang Gas (SembGas), the three PSCs agreed to deliver 325 million cubic feet per day (MMCF/D) for 22 years, or a total 2.61 trillion SCF, from Indonesia to Singapore (Jurong Island). Revenues from the gas sales are projected to reach $8 billion over the life of the contract.

The electricity sector, Indonesia's largest consumer of natural gas since 1995, used 222 billion SCF of natural gas in 2001, down from 224 billion SCF in 2001. The decline is due to a gas shortage from BP's Kangean field. State electricity company PLN, however, anticipates gas for power generation will become increasingly competitive and gas demand will exceed supply after 2005. At that time, the Indonesian Government plans to eliminate the fuel oil subsidy completely, thus making the gas price more competitive. The second largest domestic users (several nitrogenous fertilizer plants) consumed 15.4 percent less natural gas in 2001, 181.4 billion SCF from 214.4 billion SCF in 2000. The four-month suspension of ExxonMobil's natural gas production reduced natural gas deliveries to two fertilizer plants in Aceh. In contrast, gas utilization by residences and commercial entities in Surabaya and Jakarta increased 38 percent to 86.3 billion SCF in 2001 from 62.6 billion SCF in 2000. 

Source: MIGAS

BP to Revise Gas Supply Deal

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the government is negotiating to discontinue BP's exclusive rights to supply natural gas from its Kangean field. BP has a franchise to supply up to 320 MMCF/D to consumers in East Java, but Kangean's depleting resource will soon be unable to meet customers' requirements for natural gas supply. A take-or-pay clause in BP's contract now prohibits the entry of other suppliers that could meet the growing demand in the province. State oil and gas company Pertamina has presented a document to BP outlining the removal of the UK-based company's preferential rights.

Several firms are ready to supply gas to make up for the supply shortfall. Earlier this year, Pertamina signed a memorandum of understanding with Amerada Hess to produce 150 MMCF/d of gas from Ujung Pangkah by 2004. Pertamina will ask BP to give up at least 224 MMCF/D of gas (in take-or-pay supply rights) to protect Amerada Hess and other producers. BP has expressed willingness to revise its contractual terms since the company is not able to produce enough natural gas to meet the original contractual terms. BP currently produces 260 MMCF/D of gas and expects output to fall to 226 MMCF/D.

In return, BP hopes to obtain the extension of its Kangean production sharing contract, expiring in 2010, to justify further investment to develop two gas fields in the Kangean PSC block. BP wants the extension to justify a $400 million Terang/Sirasun gas development project. BP will start development of the Terang and Sirasun fields as soon as the government agrees to extend the expiring contract. Indonesia needs to accelerate gas development of the growing gas market in East Java, where demand is expected to exceed 700 MMCF/D by 2010.

PGN Selects Pipeline Partner

State gas pipeline company PGN selected a group lead by Malaysian state-owned petroleum company Petronas as its strategic partner in the construction of a $470 million pipeline network. The Petronas-led consortium will invest US $200-$250 million to take a 25% to 40% equity stake in PGN subsidiary TransCo I. The Petronas-led consortium includes Singapore Petroleum Co., Talisman Energy Inc. and Gulf Indonesia Resources Ltd. PGN invited the participation of a strategic partner to meet a requirement for receipt of an Asian Development Bank (ADB) US $88 million concessional loan. PGN had delayed the TransCo I sale since late 2001, raising concerns of a possible delay in Indonesia gas exports to Singapore, contractually set to begin in the second half of 2003.

TransCo I will construct the South Sumatra-Singapore gas pipeline, which will deliver about US $9 billion worth of natural gas over 22 years to Singapore. The other bidders were Kogas, together with American investment firm AIDEC Management Co. Pte. Ltd.; a Singapore Power-led consortium; and a partnership between Unocal Corp. and El Paso Corp. U.S.-based construction firm Williams., a key partner in the Singapore Power consortium, pulled out of the race in February. PGN aims to complete the Sumatra-Singapore pipeline construction tender by May and start construction in June. Gulf Indonesia President Paul Warwick welcomed selection of the Petronas consortium as "an important step" toward achieving Gulf Indonesia's goal of becoming Indonesia's leading independent oil and gas producer by 2005.

In a related development, Gulf Indonesia, Pertamina, and PGN signed a memorandum of understanding (MOU) on April 18 for the supply of natural gas to Batam Island. Under the MOU, Gulf Resources will supply PGN with up to 50 million scf/d of natural gas from the Corridor Block in South Sumatra. PGN, in turn, will deliver the gas to various domestic industrial and commercial customers, including a power plant operated by state electricity company PLN. In the first stage, PGN will develop 115 kilometers of gas distribution network in Batam. The parties are expected to sign a definitive agreement by August this year.

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