Energy industry to benefit from Aceh peace deal

Energy industry to benefit from Aceh peace deal

The Jakarta Post, Jakarta

The landmark peace deal signed by the government and Aceh
rebels on Tuesday could finally bring to an end the years-long
security troubles experienced by oil and gas firms in the
province and encourage them to expand their operations there,
analysts said.

The province's oil and gas output should increase in the
future and the people of Aceh will have more money to rebuild
their homeland after decades of violent conflict that claimed
thousands of lives, the analysts said.

"The peace deal will help improve the country's investment
climate in general and, in particular, help revive the troubled
oil and gas industry in Aceh province," energy analyst Kurtubi
told The Jakarta Post.

Kurtubi was referring to the agreement signed by the Free Aceh
Movement (GAM) and the Indonesian government on Tuesday in Geneva
to end decades of hostilities.

Rich in oil and gas, Aceh is home to one of the country's most
important liquefied natural gas (LNG) complexes, located in Lhok
Seumawe. The complex is jointly owned by state oil and gas
company Pertamina, ExxonMobil Indonesia, a subsidiary of American
energy giant ExxonMobil Corp., and a Japanese consortium called
JILCO.

The Arun LNG plant originally had six trains but only four
trains are now in operation due to declining gas supplies. The
plant supplies LNG to South Korea and Japan.

The plant was forced to suspend operations for several months
in 2001 following a decision by ExxonMobil, the sole gas supplier
to the plant, to stop its gas operations in the province due to
security worries arising from the conflict between the military
and rebels.

Large industrial companies in the province, including
fertilizer firms PT Pupuk Iskandar Muda and PT ASEAN Fertilizer,
were also forced to suspend operations due to the halt in gas
supplies.

The suspension of LNG production at the Arun plant harmed
Indonesia's reputation as the world's LNG supplier.

ExxonMobil was only willing to resume its gas operations in
July last year, about four months after the suspension, after the
government sent in more troops to the province to protect its
operations.

Kurtubi said the Aceh peace agreement would reduce the risks
faced by Pertamina and ExxonMobil in operating in the province,
and provide ExxonMobil and other energy firms in Aceh the
opportunity to develop additional gas resources. This would
ensure the security of gas supplies to the Arun LNG plant.

"The peace deal is also expected to boost Indonesia's profile
as an LNG producer, as buyers will be more confident about the
security of LNG supplies from Arun," Kurtubi said.

In addition to Arun, Indonesia also has the Badak LNG center
in Bontang, East Kalimantan, and plans to build another complex,
the Tangguh LNG plant, in the Bird's Head area of Papua.

Hariyanto, spokesman for the country's upstream oil and gas
authority, BP Migas, cautiously welcomed the peace deal, saying
that even with the deal it would take time for peace to
materialize in Aceh.

"The peace deal is the dream of many people. Yet it is still a
political thing. The reality in the field could be different.

"Industry players will wait for one to six months before they
are convinced that Aceh is heading toward peace. Once they are
convinced, they will certainly increase their activities, which,
of course, would benefit not only the companies but also the
people of Aceh and the country in general," Hariyanto told the
Post.

Under the Nanggroe Aceh Darussalam autonomy law, Aceh is
entitled to receive 70 percent of the government's oil and gas
revenue from the province. In comparison, almost all other
provinces receive 15 percent of the government's oil revenue and
30 percent of its gas revenue from their respective areas.