Premier Oil targets Ujung Pangkah gas sale deal this year
JAKARTA (JP): British oil and gas company Premier Oil Indonesia Ltd. expects to secure a contract by the end of this year to sell over 50 million cubic feet per day (mmcfd) of gas from its Ujung Pangkah gas field in East Java to local power companies.
Premier president Robin Allan said that the contract would pave the way for developing the company's Ujung Pangkah gas field, located north of Surabaya.
"We would like to sign a gas sales agreement by the end of this year, if we can, and deliver the gas by 2004," Allan told The Jakarta Post on the sidelines of the second meeting of the Indonesian British oil and gas working group.
He said Ujung Pangkah's proven gas reserves were 500 billion cubic feet, from which Premier hoped to deliver gas in excess of 50 mmcfd.
"It (gas reserves) could be double that, we haven't finished exploring," he added.
Allan said contracts on gas sales would also be signed with power producers in East Java, including state electricity company PT PLN.
He refused to disclose the investment value of the Ujung Pangkah gas project, other than to say that it would be in excess of $100 million.
"We aren't developing until we find a buyer for our gas," he added.
Premier, he said, is developing the Ujung Pangkah gas field under a production-sharing contract with state oil and gas company Pertamina.
Under the contract, the British company is entitled to a 30 percent revenue sharing, with the other 70 percent going to the government.
Allan fell short of naming the other partners in Ujung Pangkah. According to Premier's 1999 annual report, the company owns a 40 percent share in the project.
Allan was upbeat a deal was within reach given the steep growth of industrial gas consumption in the area.
A fuel subsidy slows the growth, but as the government is phasing out subsidy spending, gas will become increasingly more competitive, he explained.
"For me it makes sense for Indonesia to use natural gas rather than diesel for the electricity market," he said.
Without the fuel subsidy, the price of gas is cheaper and environmentally friendlier.
To date, industrial diesel fuel prices have been set at 50 percent of international market prices, which has effectively closed the pricing gap between gas and other fuels.
Director general for oil and gas Rachmat Sudibyo said the price of gas equivalent per liter is about Rp 1,100 (about 98 US cents) compared to Rp 1,200 for industrial diesel fuel.
"If the price of diesel fuel is set at 60 percent of market prices, certainly more will ask for gas," he explained.
According to him, before the economic crisis struck the country, many factories began to consider using gas instead of other fuels.
But as the crisis send the rupiah plunging, gas lost its appeal as it was priced in US dollars.
"It's quite obvious that businessmen seek the cheapest energy alternative," he said.
Allan went on to say that he hoped to see within the next few months another gas sales agreement with Malaysia for his company's Block A gas field in West Natuna.
It will be the second gas deal to be signed by state oil and gas company Pertamina and Petronas for the supply of gas from the West Natuna area to Malaysia.
Last March, Pertamina signed a deal with Petronas allowing Pertamina's production sharing contractor Conoco Inc of the United States to send a total of 1.5 trillion cubic feet of gas its Block B field in West Natuna to Malaysia for 20 years starting next year.
Premier also supplies gas from the same block in West Natuna to Singapore through a consortium comprising oil and gas companies Gulf Resources from Canada, and Conoco.
Twenty-seven percent of Premier's production working interest is located in Indonesia, making the country its second largest operation after the United Kingdom. (bkm)