PGN introduces new hybrid pipeline

To increase its competitiveness, state-owned natural gas distributor Perusahaan Gas Negara (PGN) is introducing a pipeline system called hybrid in its massive 493 kilometer gas pipeline projects across Sumatra, which allows the company to offer and distribute natural gas before the completion of the pipeline construction.PGN President Director W.M.P. Simanjuntak explained the idea recently to a small number of reporters including The Jakarta Post's Fabiola Desy Unidjaja.

The following is an excerpt of the discussion:

Question: To lure investors to participate in the project from Riau to Belawan in North Sumatra, is PGN offering something new?

Answer: We have a new innovation called the hybrid system. Previously, there was the point-to-point concept, where we can only distribute the gas after we finish the entire project.

With the hybrid system it will be different. We build the pipeline, but if at a certain point there are indications of a potential market, then we could immediately build an extra line branching from the main line to tap the natural gas.

In this industry, we have two markets, distribution and transmission. For the transmission of the Sumatra pipeline project, we have the Belawan market with Asahan Power as our main consumer.

But with this system, we could also simultaneously develop the distribution market. If there is a potential market in the area along the main pipeline, we do not need to wait until we finish the project to tap the gas and begin the distribution.

Once we have the contract, we can distribute gas in that area. Afterward, we could continue with the transmission project as we seal off the main pipeline and continue with the construction.

Not only will this system allow us to generate income earlier, it will also give us a chance to promote the use of natural gas much earlier as an alternative source of energy to oil.

The Sumatra pipeline will be our first project with this system. We are synchronizing both the transmission and distribution markets. This will be much more efficient than the traditional point to point construction.

But technically, it'll be more complicated, won't it? Could you explain more about that?

From the engineering aspect, it is indeed more difficult, as we have to build en extra terminal at each point where we open up a new (distribution) market. It will also pose more problems on the legal side as we will also be required to ink a new contract with the gas supplier and the consumer at each point.

It will be much more difficult and eventually increase the cost by 10 percent, because we are building a "spider web" pipeline model along the main trunk. But, I assure you that it in the end it will generate higher profit than the traditional system.

How about the consumers for the transmission market, will the new system bother them, knowing that the main pipelines will be tapped by distribution pipelines along the way?

The capacity of the Sumatra pipeline project is 350 million cubic feet per day, while the Kondur field needs around 100-150 million cubic feet. That opens the possibility for us to invite other buyers because we still have more to spare.

Moreover, the gas reserves in Sumatra and Kalimantan islands are much more stable than Java island. These islands have long- lasting reserves that will ensure security of supply.

Where will the local authorities play the role, especially since the hybrid system will require more land acquisition around the areas?

We would offer them the opportunity to establish a joint- venture firm with the regional administration, but they have to distribute and provide customer services in accordance with our standards.

It's similar to a franchise system, in which local authorities will pay us a fee as we serve as a consultant to maintain the quality of the distribution.

When will the PGN launch the concept and possible financial scheme to the investors?

We are slated to finish the whole concept in March and begin bidding for investors in April. We are keen to finish the entire project by 2007 as originally planned.