Mon, 21 Jul 2003

Gas producers signs $14b in contracts

Wahyoe Boediwardhana, The Jakarta Post, Nusa Dua, Bali

The country's gas producers signed on Saturday 13 sales contracts worth U$14 billion with state-owned electricity company PLN, Indonesia's petrochemical company Petrokimia Gresik and Singapore's Island Power.

The country's gas industry has been shaken by loss of several contracts in the Asia-Pacific market. These new contracts will help revive confidence that the domestic market can absorb much of the country's gas output.

Because gas is cheaper than oil-based fuel, the use of gas will also allow the country's industries to cut costs.

The head of the Oil and Gas Implementing Body (BP Migas), Rachmat Sudibyo, who witnessed the signing of the contracts in Denpasar, Bali, said the contracts would allow PLN to save about $10 billion in fuel costs.

"Gas is cheaper than diesel oil. So, after calculations, the use of gas by PLN at its power plants will enable it to save about $10 billion throughout the contract period," he said.

Over the past couple of years, PLN has been forced to use oil- based fuel to fire its power plants due to a lack of gas supplies. This has inflated the company's production costs, which is one of the reasons the company must sell its power at higher prices.

According to the contracts signed on Saturday, PLN will receive gas supplies from a number of producers, including PT Exspan Nusantara, Pertamina, Santos Pty. Ltd., ConocoPhillips Grissik Ltd., Lapindo Brantas Inc., Amerada Hess, BP West Java Ltd. and BP Muriah Ltd., for its power plants in East Kalimantan, East Java, Central Java and South Sumatra.

Singapore's Island Power will get gas from ConocoPhilips's fields in Sumatra, while Petrokimia will get supplies from Amerada Hess.

A total of 1.2 billion standard cubic feet per day (BCFD) of gas will be supplied by PLN, Island Power and Petrokimia throughout the contract periods of between 15 years and 20 years.

Indonesia is one of the world's largest gas producing countries, with reserves of about 174 trillion cubic feet. The country produces 8.4 BCFD of gas.

In the past, the government preferred to export the gas, which made Indonesia the largest gas exporter in the region for several decades. But recent losses suffered by Indonesia in a number of liquefied natural gas tenders have prompted the government to look to the domestic market for gas sales.