Gas offered to reduce oil dependence

Gas offered to reduce oil dependence

Dadan Wijaksana, The Jakarta Post, Jakarta

Against a backdrop of rising domestic fuel prices, one feasible
option for the country to wean itself off its dependence on oil,
and thereby reduce fuel subsidy spending, would be to promote the
use of natural gas, experts say.

Energy sector observer Kurtubi said over the weekend that the
nation's dependence on oil had reached a worrying level with the
country having to import some 30 percent of its oil requirements
per year to meet domestic demand.

"The government has to realize that such a policy is costly.
It is high time for the next government to start seriously
thinking about promoting the use of non-oil products, notably
gas, which we have in abundance," Kurtubi told The Jakarta Post.

Data from the Ministry of Energy and Mineral Resources shows
that as of the end of 2003 the country's gas reserves (proven and
potential) stood at 198.13 TCF, but these are still largely
untapped due to the limited support infrastructure, including
distribution and transmission lines.

In 2003, the nation's total gas output by state oil and gas
company Pertamina and production sharing contractors reached a
mere 3.3 TCF, some 90 percent of which was exported.

Extensive development of infrastructure is necessary in order
to boost the use of gas domestically in view of the fact that the
users and potential users of the commodity are concentrated on
Java, while most gas is currently produced outside the island.

Kurtubi's remarks came amid a debate over whether or not the
government needs to start raising selected fuel prices to reduce
fuel subsidy spending and ease the pressure on the state budget.

Under the newly-approved revised 2004 state budget, fuel
subsidy spending has been earmarked at a whooping Rp 59.2
trillion -- which represents a more than 300 percent increase
from the initial target of Rp 14.4 trillion.

Kardaya Warnika, deputy chairman of the oil and gas regulatory
body, BP Migas, said that an increase in gas demand would come as
soon as the government began cutting spending on fuel subsidies.

The gradual slashing of fuel subsidies would then push the
price of oil-based fuels up, forcing users -- both industrial
household -- to seek alternative energy, such as gas, Kardaya
said.

However, Kardaya admitted that it would take about three to
five years to build and improve the infrastructure to make
optimize gas distribution.

But, he was of the opinion that by rising fuel prices, which
would eventually help boost demand for gas, would in turn draw
enough interest from investors, both domestic and foreign, to
start investing to expand the current gas pipeline
infrastructure.

"So, yes, it may take some time, but it is not too far away
either if we start now," Kurtubi said.

Currently, state-owned PT Perusahaan Gas Negara, which
controls gas distribution in the country, only serves six cities
-- Medan, Palembang, Jakarta, Bogor, Cirebon and Surabaya.

The firm plans to boost gas supplies to Surabaya, the
country's second largest city, from various fields offshore East
Java. It will find no difficulty in delivering the gas from these
fields as there is already a transmission pipeline linking Madura
island to the city.

PGN also plans to start supplying gas to Banten and West Java,
the main industrial regions of the country. Given the lack of gas
output in these regions, PGN plans to build a transmission
pipeline linking them to gas-rich South Sumatra.

Once the South Sumatra-West Java transmission pipeline is
completed in 2006, many industrial undertakings are expected to
switch from oil to gas.

Another potential gas supplier for Java is the Cepu block,
located in the border area between Central and East Java.
American firm ExxonMobil has reportedly found huge gas reserves
in the area. However, ExxonMobil has postponed developing the
fields as the government has yet to approve its request for a
contract extension.