Lack of natural gas supply halts production at PIM

Lack of natural gas supply halts production at PIM

Leony Aurora, The Jakarta Post, Jakarta

Time is up for fertilizer firm PT Pupuk Iskandar Muda (PIM) in
Aceh as its natural gas supply allocated from ExxonMobil's Arun
field in the province runs out, forcing production to, again,
grind to a halt.

The company actually had enough natural gas for another two
days last Friday but stopped production nevertheless, PIM's
president director Hidayat Nyakman said over the weekend.

"It's no use (to continue production) anyway," he said.

Some 1,200 employees and 2,000 more contract workers will have
to stay home as the gas supply has been cut, said Hidayat. "We
only have enough money to pay them for two or three months."

Exxon's spokesman Maman Budiman confirmed that it had stopped
supplying PIM with gas.

"We don't know yet what's next," said Maman. "The government
is trying to get one cargo of LNG (liquefied natural gas) to be
delivered," he added.

Exxon's contract with PIM to supply gas at US$2.3 per million
British thermal unit (mmbtu) expired in early July. The gas
producer agreed to extend provide the same amount as one cargo of
LNG -- sufficient for two months operation -- at global prices
after the government guaranteed that it would find compensate
them with one cargo.

Amid its efforts to find more LNG on the spot market, Korea
Gas, one of Indonesia's customers, agreed to take one less cargo
of LNG last month.

Head of marketing of the Oil and Gas Upstream Regulatory
Agency (BP Migas) Djoko Harsono said the government was trying to
have another cargo made available by Korea to secure the supply
for PIM.

"It is easier than getting a cargo on the spot market, as
prices are high now," he said.

Global prices for LNG produced by Exxon in Arun hover around
$9.50 per mmbtu.

PIM, which is allowed to export its products to afford more
expensive gas, can only afford to pay about $5.50 per mmbtu, said
Hidayat, as global fertilizer price was down to $240 per ton from
$270 per ton two months ago.

Djoko said that the government would cover the rest. "The
amount is up to the Ministry of Finance, the Office of State
Minister of State Enterprises and PIM," he said.

The government is also in talks with Oman and Qatar to provide
LNG for PIM in the short term. For the long term, it wants to get
more gas from the undeveloped A Block in the province.

ConocoPhillips, which owns 50 percent of the participating
interest in the gas-rich block, has paused its development as it
hopes to secure a larger split than the 48 percent offered by the
government.

Exxon, which owns the other half of shares, plans to begin the
process to sell its shares in the block on Sept. 19.

"Any company interested in acquiring the stakes is welcome to
take a look at the available data," said Maman, adding that all
bids were expected to be submitted before Nov. 1. He declined to
say when the winner would be announced.

Indonesia's largest and second largest locally controlled oil
and gas companies PT Medco Energi Internasional and PT Energi
Mega Persada have said that they were interested in buying the
shares.

Medco's president director Hilmi Panigoro said on Aug. 8 that
the split offered by the government was "very attractive".

The government usually gets 65 percent of the gas produced in
a field. The split in A Block is different as it has relatively
small gas reserves and the gas contains a high amount of sulfur,
which therefore, makes it more expensive to exploit.