RI gas demand to increase as fuel subsidy dries up

RI gas demand to increase as fuel subsidy dries up

Moch. N. Kurniawan, The Jakarta Post, Jakarta

With the progressive reduction in the fuel subsidy and its
complete removal in 2004, the use of compressed natural gas (CNG)
as a source of energy in the country will inevitably rise
particularly due to a combination of the lower price compared to
fuel, and improved gas transmission systems.

State-owned oil and gas firm Pertamina upstream deputy
director Eteng A. Salam said last week that gas would start
taking over oil-based fuel as the fuel subsidy is gradually
lifted.

"The demand for gas is continuously growing and will increase
more after the fuel subsidy is (completely) removed," he said.

Pertamina has said that domestic demand for gas would grow by
between 5 percent and 8 percent per year over the next several
years.

It said the country's gas utilization had been relatively flat
at between 8.15 to 8.38 billion cubic feet per day (bcfd) since
1997.

The government has been gradually cutting the fuel subsidy
since the country tumbled into the 1997 financial crisis in a bid
to ease the burden of the state budget.

This month, the government will announce another fuel price
hike of between 20 percent and 25 percent as a consequence of a
further reduction in the fuel subsidy.

At present, the government sells fuel to two distinct users,
industrial users and public users.

For industrial users, the government sells the fuel at 50
percent of the international price and sets the price monthly.

In January, the price for industrial diesel oil is Rp 740 (7.08
U.S. cents) per liter, kerosene Rp 820 per liter and fuel oil Rp
615 per liter, automotive diesel oil Rp 900 per liter and
gasoline at Rp 1,450 per liter.

In comparison, gas for industrial users is sold at US$3 per
million metric British thermal unit or 11.79 cents per liter,
which is still relatively more expensive than the price of the
heavily-subsidized fuel products.

Eteng said Pertamina had anticipated the growing gas demand in
the country by founding new gas reserves and developing new gas
pipelines.

"We will explore more gas reserves and develop more gas
pipelines," he said.

He said Pertamina had discovered several gas reserves
including in the Donggi gas fields, in Central Sulawesi with
proven reserves of 3.9 tcf, and some small gas reserves in East
Java in the Suci gas fields.

Pertamina and state gas company PGN had also jointly developed
pipelines from South Sumatra to West Java, which will deliver gas
from Prabumulih gas fields in South Sumatra to West Java at 250
mmcfd starting 2005, Eteng added.

PGN also plans to develop several major pipeline projects to
connect East Java and West Java, East Kalimantan and East Java.
It is not clear, however, when the projects will commence.

At present, the existing gas pipelines connect Pagerungan gas
fields to Gresik (East Java), Cirebon to Cilegon (West Java),
Palembang (South Sumatra) to Duri (Riau) and West Natuna to
Singapore.

Pertamina and PGN control the gas distribution system in the
country and charge other oil and gas companies that use the
pipelines to deliver their gas to consumers.

Power, fertilizers and other industries absorb about 26
percent of the 8.15 bcfd. Another 63 percent of the country's gas
is exported in the form of liquefied natural gas (LNG), while the
remainder is flared and lost.

The country's total proven and potential gas reserves stand at
160.8 tcf.

In the field of LNG export, the country's LNG also has new
potential buyers from China, India, the Philippines and the
United States, in addition to existing buyers from Japan, Taiwan
and South Korea.

Pertamina and British American firm BP have recently submitted
a proposal to supply LNG to China's Guangdong industrial
province.

Pertamina has also signed a contract with Philippine energy
firm GN Power to supply the latter with 1.3 million metric tons
of LNG starting in late 2005 for 15 years to 20 years.

It has also made a preliminary agreement with American energy
giant El Paso Corp. to allow the latter to distribute gas from
Indonesia to the U.S. market.

According to a study, the prices for oil-based fuel would be
extremely expensive in 2010 due to the rising oil demand vis-a-
vis the declining world oil production.

At that time, the demand will reach about 90 million to 100
million barrels of oil per day.