PGN keeps on dreaming of boom in domestic gas consumption

Sudibyo M. Wiradji, Contributor, Jakarta

To anticipate an expected boom in the domestic consumption of natural gas, state gas company Perusahaan Gas Negara (PGN) is currently busy seeking loans to help finance its mega pipeline projects.

In an interview on Wednesday, the firm's president director W.M.P. Simanjuntak stated that PGN, whose primary mission is to distribute the gas, has been striving to meet the growing demand which mostly comes from industries.

"Currently, the need is higher than the available supply capacity. This is not because of the lack of natural gas reserves but simply due to the location of the reserves, which are mostly located in the country's vast islands like Sumatra, Kalimantan and Papua," he said.

On the other hand, the prime customers are mainly running their businesses here in Java, Simanjuntak explained.

The seemingly sudden growing domestic demand for natural gas could indicate a sign that the economic machine of Indonesia has started to run again.

But Simanjuntak also attributed the good symptoms to the strengthening rupiah and the recent government policy to finally reduce its subsidy for oil consumption to around 43 percent.

"Due to the subsidy reduction, in particular, more and more industries have shifted the use of fuel from diesel to natural gas," he said.

According to data available at the PGN office, it booked a total throughput last year at 570.12 MMSCFD (million standard cubic feet per day), which is 2.3 percent higher than 557.56 MMSCFD recorded in 2000. In 1999, the amount reached 521 MMSCFD.

Simanjuntak estimated that the figure for 2002 would go up even more.

The number of customers, mainly industries, went up by 11.7 percent last year to 49,866 from 44,638 in the previous year. In 1999, the company recorded 40,106 customers.

The gas consumption in the transportation sector, which is supposed to be a major customer for PGN, and households remains small.

PGN, for example, has constructed 21 filling stations for cars using natural compressed gas (CNG) in the past 10 years. And four of them are already closed due to the lack of consumers, he said.

Simanjuntak blamed the unfavorable situation on the expensive price of the imported converter required for cars using CNG which has discouraged car owners.

But PGN plans to go all out to continue its campaign to win the market.

"Our short-term target remains -- to take over the annual consumption of 13 million kilo liters of diesel fuel by the transportation sector," he said.

Very recently, Simanjuntak said, PGN signed an agreement with the government and the Japan Bank for International Cooperation (JBIC) for a US$415 million loan to be provided by JBIC to fund PGN's 498-kilometer pipeline project that links Pagardewa (in West Sumatra), Cilegon (Banten) and Cimanggis (West Java).

"The loan commitment scheme is expected to be completed by the end of October 2002," he went on.

With the funding from Tokyo, PGN will commence construction of the West Sumatra-West Java Transmission Project, which will cost some $486 million, sometime next year. It's expected to be accomplished after two years of construction.

"Upon completion, the pipeline network would be able to transport some 250 MMSCFD," Simanjuntak said. "But when the project fails to meet the 2005 deadline, West Java will suffer from a possible fuel shortage."

The West Sumatra-West Java Gas Transmission Project repre sents, he claimed, only a small part of a grand scenario dubbed 'The Integrated Indonesia Gas Transmission System,' or IGT'.

The first mega project of 536-kilometer Grissik-Duri (both in Sumatra) pipeline network for gas distribution was completed in 1998, which was then followed by the completion of the Grissik - Sakeman - Batam - Singapore pipeline link.

For its medium-term plan, the company already has at least four major projects, namely the 390-kilometer Grissik-Semarang (Central Java) project, 290-kilometer Cirebon (West Java) - Semarang (Central Java), 180-kilometer Grissik-Pagardewa (also in Sumatra) projects, and the 110-kilometer East Kalimantan-East Java pipeline.

In its long-term scheme, the firm plans to build the 720- kilometer East Kalimantan - Brunei pipeline project, the 695- kilometer West Kalimantan - South Kalimantan pipeline, the 640- kilometer Duri - Arun (Aceh), and the 200-kilometer Sengkang - Makassar (both in South Sulawesi) project.

To fulfill the dreams amidst the financial constraints, Simanjuntak offers foreign participation in the multi-billion dollar construction projects.

"I think it's okay to offer shares, say 40 percent to inves tors as long as we're still the majority shareholder," he said.

For instance, the construction of the East Kalimantan - East Java project that is expected to start in 2004 and completed in 2008 will require $1.7 billion.

While accompanying the recent state visit of President Megawati Soekarnoputri in China, Simanjuntak admitted that he had offered the project to interested parties.

So far, the Asian Development Bank (ADB) and European In vestment Bank (EIB) have shown signs of interest in investing in the project, with US$200 million and US$100 million respectively, he said.

Gas reserves outside Java like in East Kalimantan are known for their high level of stability.

"When completed, the East Kalimantan - East Java project is expected to be able to distribute some 1 billion kiloliters (1 BCFD).

"With the project, Java will have a secure energy supply for 30 years," he concluded.

According to data available, Indonesia's natural gas production fell by 3.2 percent in 2001 to 2.8 trillion standard cubic feet (TCF) per day. The state owned oil and gas company Pertamina estimates that the natural gas production will increase to 3.2 trillion TCF in line with the growing demand from home and overseas.

According to the United States-based Energy Information Administration, the world's natural gas consumption in 2020 is projected to nearly double the 1999 total of 84 trillion cubic feet, and its share of the total energy consumption is expected to increase by 23 percent to 28 percent in the same period.

The growth of natural gas consumption in developing countries is expected to be significantly greater than in the rest of the world.

The developing countries in Asia are expected to contribute 19 percent of the increase in the world gas demand from 1999 to 2020, the EIA said in its International Energy Outlook 2002.

Things are definitely looking up for PGN.