Indonesia needs to expand local share of gas reserves<\/p>\n
By Berni K. Moestafa<\/p>\n
JAKARTA (JP): Indonesia is the first country to export
\nliquefied natural gas (LNG) and is currently the biggest LNG
\nexporter, making up 30 percent of the world's LNG trade.<\/p>\n
According to data issued by state oil and gas company
\nPertamina, Indonesia exported 26.35 million tons of LNG in 1988,
\nfollowed by Algeria with 18.2 million tons and Malaysia with 14.2
\nmillion tons.<\/p>\n
With proven natural gas reserves of over 130 trillion cubic
\nfeet (tcf), Indonesia will likely maintain its presence as a
\nmajor player in the world's LNG trade.<\/p>\n
Chairman of the Indonesian Petroleum Association William T.
\nFanagan said that during 1994 to 1999 alone, Indonesia discovered
\nhydrocarbon reserves equivalent to 5 billion barrels of oil, 80
\npercent of which was natural gas.<\/p>\n
Despite the vast reserves and the recent discoveries, many of
\nthem remain undeveloped because the reserves had no markets,
\nFanagan said.<\/p>\n
He was referring to the undeveloped small gas reserves
\nscattered across the country. The few larger reserves, such as
\nthe Natuna gas fields located in the Southeast China sea, are
\nbeing developed for the export market.<\/p>\n
They include the Arun gas fields in Aceh, the Bontang fields
\nin East Kalimantan and the Tangguh field in Irian Jaya.<\/p>\n
Most gas discoveries, however, contained reserves that were
\ntoo small to provide the basis for a stand-alone LNG operation
\nfor export markets.<\/p>\n
But while Indonesia leads the world's gas market with almost
\n60 percent of its gas production in 1999 shipped out in the form
\nof LNG, domestic consumption accounted for only 20 percent.<\/p>\n
"We need a workable domestic gas policy that promotes the
\nwidespread use of gas and invests in expanded gas
\ninfrastructure," Fanagan said.<\/p>\n
He said a workable gas policy would reduce the use of
\nsubsidized fuels and expand the exploration and development of
\nnew fields.<\/p>\n
Energy policy<\/p>\n
Pertamina's exploration and production director, Gatot K.
\nWiroyudo, said the government's new energy policy gave more
\nattention to the use of gas as an alternative fuel.<\/p>\n
To encourage the development of gas fields, the government was
\noffering incentives to Pertamina's gas production sharing
\npartners, Gatot said.<\/p>\n
He said these incentives aimed at making upstream gas
\ndevelopment projects more feasible.<\/p>\n
He said that under gas production sharing contracts, investors
\nwould receive 30 percent and Pertamina 70 percent from the gas
\nrevenue.<\/p>\n
This doubles the share from an oil production sharing
\ncontract, which splits revenue by 15 percent to 85 percent for
\nPertamina.<\/p>\n
"Investors in remote area can even get a 40 percent share, and
\nother incentives can be offered on individual bases," Gatot
\nexplained.<\/p>\n
However, he agreed that a domestic gas policy must confront
\nthe problem that subsidized fuel was causing.<\/p>\n
"What is hampering the growth of local gas demand is the
\npresence of subsidized fuel," Gatot explained. He said that gas
\nprices could not compete against the low prices of the subsidized
\nfuel.<\/p>\n
According to Gatot, in order to boost the gas market, the
\ngovernment must either abolish the fuel subsidy or subsidize gas
\nfor local consumers.<\/p>\n
The government is planning to cut the fuel subsidy by an
\naverage 12 percent in October, after having delayed the move in
\nApril due to mounting public opposition.<\/p>\n
Gatot added that cheap gas sold to some industries was also
\ndiscouraging to investors.<\/p>\n
He said the government offered low gas prices to the
\nfertilizer industry, which was the largest domestic gas consumer.<\/p>\n
Last year, the fertilizer industry accounted for 35 percent of
\ntotal domestic gas consumption.<\/p>\n
He said that in order to make fertilizer affordable to local
\nfarmers, the government demanded that Pertamina sell gas at a low
\nprice.<\/p>\n
Gatot added that at present the domestic market was unable to
\npurchase the gas at a feasible price.<\/p>\n
"However, the cheap price of gas does not encourage investors
\nfrom developing gas fields," he further said.<\/p>\n
But Gatot warned that applying a standard gas price might also
\nharm investors, as they faced different levels of costs depending
\non the locations of the gas discoveries.<\/p>\n
"The closer the gas discoveries are to the presence of
\ninfrastructure, the cheaper investors can sell their gas," he
\nsaid.<\/p>\n
President of state gas distribution company PT PGN Qoyum
\nTjandranegara has another view on why the development of many gas
\ndiscoveries is slow.<\/p>\n
He said an inadequate gas pipeline network was hampering the
\ndistribution of gas to its main market in Java, hence making the
\ndevelopment of many reserves unfeasible.<\/p>\n
"The presence of a gas transmission line will dictate the
\nmarketability of the gas," Qoyum said.<\/p>\n
While the central market for gas was located in Java, he said,
\nmost gas reserves were scattered in Sumatra, Kalimantan, Sulawesi
\nand Irian Jaya.<\/p>\n
Less then 10 percent of the country's total proven natural gas
\nreserve is located in Java, data from PGN reveal.<\/p>\n
"The problem is how to transport the gas from the sources to
\nthe central market area. It needs a gas pipeline infrastructure,"
\nQoyum said.<\/p>\n
He said that linking scattered gas reserves with the market
\nwould, among other things, absorb small and marginal fields
\nnearby, create new gas markets close to passing pipelines and
\nreduce the transportation costs of gas.<\/p>\n
The presence of such infrastructure would also make the
\ndevelopment of smaller gas reserves more attractive to investors,
\nhe added.<\/p>\n
Qoyum suggested that government develop a comprehensive gas
\npipeline network, instead of the previous "piecemeal
\ndevelopments".<\/p>\n
He proposed the Indonesian Gas Transmission System (IGT) link
\nEast Kalimantan, Java, Sumatra, Batam, Singapore, Johor
\n(Malaysia), Brunei and the Natuna reserves with the market.<\/p>\n
"There is likely large potential for additional gas markets in
\nIndonesia, and it will surely materialize with the introduction
\nof advanced gas utilization systems and gas supply
\ninfrastructure," he said.<\/p>\n
However, as domestic markets remain undeveloped, Indonesia
\nwill continue to expand its LNG exports.<\/p>\n
Pertamina last week signed an memorandum of understanding
\n(MOU) with India to supply the country with LNG; most likely from
\nthe Bontang gas fields.<\/p>\n
Although both countries still need to discuss a final
\nagreement, But Pertamina is upbeat that India will name it as its
\ngas supplier.<\/p>\n
Pertamina has also expressed optimism that it would win an
\nupcoming tender next month to supply China with three million
\ntons of LNG gas annually.<\/p>\n
The LNG will come from the Tangguh gas fields, which Pertamina
\njointly develops with oil and gas company BP Amoco Indonesia.<\/p>",
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