Govt extends West Natuna gas contracts

JAKARTA (JP): The government has finally agreed to extend the production sharing contracts awarded to the contractors grouped in the West Natuna consortium. This will secure natural gas supplies from the gas fields west of the Natuna Islands to Singapore.

Minister of Mines and Energy Kuntoro Mangkusubroto extended on Friday the contracts awarded to the consortium's members, including Premier Oil of Britain, Conoco of the United States and Gulf Resources of Canada, to allow them to continue developing and exploring for further natural gas fields in the South China Sea over the coming three decades.

Gulf's contract on the Kakap block was extended to 2028 from 2005, while Premier's contract on the Natuna A block and Conoco's contract on the Natuna B block were extended to 2029 and 2028 from 2009 and 2018 respectively.

Kuntoro signed the contract extensions in a ceremony where state oil and gas Pertamina also signed a deal to supply Singapore's Sembawang Gas (SembGas) with natural gas extracted by the contractors from their contract areas.

"The reason behind the extension of the contracts is that we don't expect any problems of supply to occur during the contract period," Kuntoro said on the sidelines of the ceremony.

Present at the ceremony were chairman of Singapore's Economic Development Board Philip Yeo and Singapore's ambassador to Indonesia Edward Lee.

Pertamina signed a preliminary gas sales agreement with SembGas last July but the deal was delayed several times due to the refusal of the contractors to participate in it unless their contracts were extended.

Under the gas sales contract, Pertamina will supply SembGas with natural gas from the West Natuna fields for 22 years from 2001 to 2023. The gas supplies could be extended for another five years.

SembGas, a consortium comprised of Sembawang Engineering and Construction of SembCorp Industries Ltd, Singapore's Tamasek Holdings and Belgium's Tractebel SA, will use the gas to feed power and petrochemicals plants.

The gas will be channeled through a 640-kilometer underwater pipeline linking the west of the Natuna islands with Sakra island off Singapore.

The West Natuna contractors claim they will invest US$1.5 billion to develop the gas fields and transportation facilities, including $400 million for the pipelines.

Legislator Priyo Budi Santoso of the Golkar ruling party earlier criticized the government for awarding contract extensions to the West Natuna contractors under terms which were unfavorable to the nation.

Under the new contracts, the government agreed to increase the contractors' shares of the proceeds from the sale of gas from the West Natuna gas fields to 35 percent from 30 percent at present.

Priyo said the government would lose $300 million in potential earnings due to the new contractual terms.

However, Pertamina president Martiono Hadianto said the contractors' demand for an increase in the shares of the proceeds from the gas sales was reasonable given that they will invest a lot of money to develop the project as well as to explore for more gas in the area.

"The contractors will invest $44 million for further explorations alone," Martiono said.

Sales of the West Natuna gas will reportedly generate total revenue of $7.5 billion over 22 years, $2.4 billion of which -- or $180 million per year -- will go to the government in taxes and profit sharing.

The gas will be the first Indonesia has exported through a pipeline. Indonesia is currently the world's largest exporter of liquefied natural gas (LNG). Most exports are directed toward South Korea, Japan and Taiwan.

"I regard this as a landmark achievement for two reasons,"

"Firstly, it binds together our two nations: The Republic of Indonesia and the Republic of Singapore, in terms of our economic development,.. Secondly, it creates a physical link between our two nations as there is now a permanent pipeline crossing our common national border." (jsk)