BP's E. Java gas supply privilege may be terminated
BP's E. Java gas supply privilege may be terminated
Moch. N. Kurniawan, The Jakarta Post, Jakarta
The government is considering discontinuing the privilege of BP Kangean in supplying gas to East Java to allow other suppliers to meet the growing demand in the province, according to Minister of Energy and Mineral Resources Purnomo Yusgiantoro.
He said that the entry of new players was needed to avoid a gas shortage as BP's gas reserves in the Kangean fields were depleting.
"We're considering removing BP's privilege to avoid a gas shortage," he said. "Other firms which are ready to supply gas will not be able to do so without the removal."
He said that oil and gas firms which had expressed their readiness to supply gas to East Java were Kodeco, ExxonMobil Cepu and Madura, Lapindo Brantas, and state oil and gas firm Pertamina.
Anglo American energy giant BP Plc acquired the Kangean fields from American oil and gas firm Arco, which signed a contract in 1980 with Pertamina to be the sole supplier of up to 600 million standard cubic feet per day (mmscfd) of gas from Pagerungan Island via an underwater pipeline to East Java until 2010.
Under the contract, other players are only allowed to supply gas to the province should the demand exceed 600 mmscfd.
But in the next two years, BP will be unable to meet its supply target as gas output in Pagerungan continues to decline.
BP Kangean gas production stood at 330 mmscfd in September last year and at 259 mmscfd in February this year.
The prime gas consumers in East Java are state-owned electricity company PLN, fertilizer company Petrokimia Gresik and other commercial users.
Pertamina could import oil-based fuel to substitute for gas but it would be costly for the industries. The company is no longer able to meet additional oil-based fuel demand from its refineries due to limited capacity.
A source, however, said that the government should move carefully in canceling the contract to avoid being sued by BP at an international arbitration court.
A Switzerland-based arbitration court has ruled that Pertamina must pay some US$261 million in compensation to independent power producer Karaha Bodas Co. LLC after the government canceled its contract in 1998.
BP officials were not available for comment.
Separately, PLN operations director Bambang Hermiyanto admitted PLN would face a gas shortage in the near future due to the privilege enjoyed by BP.
He pointed out that PLN's power plant in Gresik alone required more than 200 mmscfd.