PGN keeps on dreaming of boom in domestic gas consumption

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.