A number of local firms, including PT Pertamina and PT Medco Energi, will later this year conduct feasibility studies on the exploration and production of coal-bed methane (CBM) in two different locations in South Sumatra.
The projects will mark the first of their kind in Indonesia.
Energy and Mineral Resources Minister Purnomo Yusgiantoro told a seminar Wednesday that a memorandum of understanding on fiscal terms and technical arrangements for the projects would be signed in Jakarta next week.
In addition to Medco and state oil and gas firm Pertamina, Ephindo, a local company that focuses on CBM, will also be among the companies signing the MOU.
Sammy Hamzah, Ephindo president director, said his company would team up with Medco to explore methane deposits in Medco's concession in Musi Banyu Asin regency in South Sumatra.
CBM fields in South Sumatra are estimated to contain deposits of 183 trillion cubic feet of gas,
Sammy said that the company would spend up to US$200 million on the project, with the target being the production of between five and 10 million cubic feet of CBM per day by 2010.
"If this project is successful, we will consider expanding it to East Kalimantan, where we have our own concession in the Kutai block," Sammy said.
Meanwhile, Medco director for corporate growth Rashid I. Mangunkusumo said that besides Ephindo, his company was also working with Pertamina to develop CBM gas at Pertamina's field in Perabumulih, also in South Sumatra.
Rashid asked the government to provide fiscal incentives for CBM developers, given the big investment needed for such projects.
Meanwhile, Sammy suggested that government offer more favorable production splits to companies involved in the exploration of CBM gas.
He said the producers should receive at least 45 percent of the production so that more companies would be interested in entering the business.
In the case of regular gas production, the production split is 35 percent for the investors and 65 percent for the government.
"CBM is different from natural gas. Its production involves many risks. So we deserve better treatment," Sammy said.
CBM -- natural gas produced by microbes during the coal-forming process that becomes trapped in coal beds -- needs a high level of investment as it requires dewatering -- draining the water from the coal beds -- which can take between three months and a year.
Indonesia, which is believed to hold the world's second largest CBM deposits, with total potential reserves of 453 trillion cubic feet, could avail of this alternative source of gas to cope with the depletion of its natural gas reserves.
The minister has called for gas producers to look into this source of untapped energy to boost Indonesia's gas production and enable the country to meet its domestic gas demand, as well as fulfill its gas export contracts with other countries, such as South Korea, Japan and Taiwan.