LNG plant under siege<\/p>\n
Indonesia's reputation as the most reliable supplier of
\nliquefied natural gas (LNG) since 1977 and the world's largest
\nexporter of that clean-burning fuel since the early 1990s, with
\ntotal shipments of more than 30 million metric tons a year, is
\nnow being jeopardized because of the security problems besetting
\nan LNG plant in the restive province of Aceh.<\/p>\n
The cumulative effect of dozens of security incidents over
\nthe past year in Aceh, where rebels have been fighting for
\nindependence for decades, escalating death threats, extortion
\ndemands, random shootings and company aircraft taking ground
\nfire, seems to have compelled ExxonMobil to shut down its onshore
\ngas fields on March 9, thereby cutting off supplies to the Arun
\nLNG processing plant.<\/p>\n
The risk of losing billions of dollars worth of contracts with
\noverseas LNG buyers is really horrifying for Indonesia especially
\nnow when it is still grappling with its worst-ever economic
\ncrisis. The temporary closure of the Arun gas fields is also
\nconveying a grim message to investors that even the hydrocarbons
\nindustry, for so long one of the main backbones of the economy,
\nis no longer immune to the political and economic turmoil that
\nhas beset the country since late 1997.<\/p>\n
Moreover, the important role of the gas fields in Arun is not
\nlimited to the LNG plant that earns about $1.5 billion a year.
\nThey also feed two urea fertilizer plants nearby, one of which is
\nthe first ASEAN joint industrial project.<\/p>\n
A still bigger loser from the stoppage of natural gas
\nliquefaction is the country's reputation as a reliable, long-term
\nsupplier. This factor is often more important than price in LNG
\npurchasing decisions due to the specific nature of the LNG
\nmarket.<\/p>\n
The LNG industry is highly capital intensive but its product
\ncannot be marketed on a spot-sales basis. A natural gas
\nliquefaction plant therefore cannot be built without the support
\nof firm, long-term sales contracts running for at least 10 years
\nand, sometimes, as long as 20 years. Buyers always insist on
\nlong-term contracts because the building of an LNG unloading
\n(receiving) terminal requires a major investment, and special
\n(cryogenic) tankers have to be ordered. A receiving terminal with
\nan annual handling capacity of three million metric tons can cost
\nas much as US$650 million.<\/p>\n
The high cost of transportation makes location a key
\nconsideration in LNG-purchasing decisions, and in this case
\nIndonesia is well positioned because Japan, Taiwan and South
\nKorea happen to be the world's largest buyers. China and India
\nare other potential huge buyers but they are still constructing
\nreceiving terminals. There is, thus, a very real geographical
\nlink between buyers and sellers that one cannot see in the case
\nof crude oil.<\/p>\n
Running afoul of its LNG buyers now is an especially
\nhorrendous prospect for the future of the Indonesian gas industry
\ndue to increasingly keen competition following capacity
\nexpansions in Australia, Malaysia, Yemen and Qatar, and the
\nemergence of new suppliers in the Middle East.<\/p>\n
The disruption of LNG supplies from Aceh could, therefore,
\naffect the development of the $4 billion Tangguh gas liquefaction
\nplant by Atlantic Richfield Co. (Arco) in Irian Jaya, another
\nrestive province with a long history of separatism. The project
\nis scheduled to come onstream in 2004 and is designed with an
\nannual capacity of six million tons.<\/p>\n
No wonder, the government and Pertamina (the state oil and gas
\ncompany) executives have been working all out at lobbying buyers
\noverseas not to immediately terminate their contracts.<\/p>\n
Needless to say, law and order should be restored to allow for
\nthe return of workers to operate the gas fields with minimum
\nsecurity risks. But the government's order to resume military
\noperations in Aceh made immediately after the closure of the Arun
\ngas fields only reinforces the Acehnese perception that the
\ncentral government is solely interested in protecting the
\nprovince's natural wealth, not the local people.<\/p>\n
We hope the upcoming military operations to safeguard the Arun
\ngas complex will not be undertaken in such a ruthless manner as
\nto entirely kill the chance of further conciliatory approaches to
\nAceh. After all, we still find it hard to believe that the Free
\nAceh Movement members are alone responsible for the security
\nproblems. We don't think they are so stupid as to go as far as
\nkilling the goose that lays the golden egg for their future
\nprosperity.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/lng-plant-under-siege-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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