Indonesia-Singapore to sign gas sales agreement today
JAKARTA (JP): State oil and gas company Pertamina has said it will on Friday (today) sign a contract to supply Singapore's Sembawang Gas (SembGas) with natural gas from the West Natuna gas fields through a 640-kilometer underwater pipeline.
The ceremony to sign the contract has been delayed several times, but Pertamina spokesman Ramli Djaafar said in a statement released on Thursday that it would finally take place at the Ministry of Mines and Energy at 10 a.m. on Friday.
Industry sources also said that Minister of Mines and Energy Kuntoro Mangkusubroto would renew the production sharing contracts (PSC) held by three contractors grouped in the West Natuna consortium. The three contractors are Premier Oil of Britain, Conoco of the United States and Gulf Resources of Canada.
Pertamina and SembGas signed a memorandum of understanding over gas from the West Natuna fields last July, but there have since been a number of delays to signing the contract.
One source of delay was the refusal of Pertamina's production sharing contractors to participate in the deal unless the government extended their right to exploit the gas fields in the South China Sea.
Under the gas sales contract, Pertamina will supply SembGas with natural gas from the West Natuna fields for 22 years from 2001 to 2023.
However, Gulf's contract in the Kakap block expires in 2005, while Premier's contract in the A block and Conoco's contract in the B block end in 2009 and 2018 respectively.
The contractors have asked the government to extend their contracts to cover the whole period of gas sales so that they can earn an acceptable return on investments they have made in the giant project.
The contractors claim they will invest US$1.5 billion to develop the gas fields and transportation facilities, including a 640 kilometer undersea pipeline costing $400 million to ship gas from West Natuna to the island of Jurong off Singapore.
SembGas will use the gas to feed power and petrochemicals plants.
Sale 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.
Delay
Meanwhile on Thursday, legislator Priyo Budi Santoso of the ruling Golkar called on the government to review its decision to extend the contracts awarded to Premier, Gulf and Conoco.
He said the extension demanded by the three contractors would cut the government's earnings from sale of the gas.
"I am not against extending the contracts, but the contractors have made use of the current economic crisis and the country's dire need of investment to force the government into accepting unfavorable terms," Priyo said.
Priyo said that Premier, Conoco and Gulf had asked the government to cut its share of proceeds from the sale of gas from the West Natuna fields to 65 percent in the new contracts from 70 percent at present.
The contractors also asked the government to increase their investment credit to 55 percent in the new contracts from 17 percent at present. Under the new investment credit scheme, the government will have to reimburse contractors by almost twice as much more than at present for exploration activities.
Priyo estimated that the government would lose $300 million in potential earnings due to the new contractual terms.
"The new contractual terms will force us to accept a loss. The government should delay extending the contracts if the contractors refuse to change the terms. Otherwise, I'll never stop criticizing this project," Priyo swore. (jsk)