After securing a gas supply of 1.5 million tons from the Bontang field in East Kalimantan, the government is eying another 1 million tons from the Tangguh block in Papua to meet domestic market demand, an official says.
Chairman of upstream oil and gas regulator BPMigas, Kardaya Warnika, said Friday the government had requested the operator of the Tangguh block -- British energy giant BP Plc -- to build another gas processing unit at the plant for the local market.
"We have requested BP to build a third processing unit to supply the local market. We have estimated the total volume for this third unit will reach around 3.7 mtpa," he said.
At present, BP is in the finishing stages of construction on two processing units at its liquefied natural gas (LNG) plant in Tangguh, with a total capacity of 7.6 metric tons per annum (mtpa).
The units are set for completion at the end of this year for supplying China, South Korea and the United States.
Kardaya said the third processing unit would be constructed after the agency approved BP's plan of development proposal at the end of this year.
"After the approval, we expect the construction of the third unit to start soon and be completed in 2011," he said.
Kardaya also said the government had set up a consortium made up of local firms to buy gas from the Bontang field.
The government has appointed state gas distributor PT Perusahaan Gas Negara (PGN) as the leader of the consortium, which will also include state oil and gas firm Pertamina and state power firm Perusahaan Listrik Negara (PLN).
"Total (the operator of Bontang) can not ink any gas deal for export before it finalizes the deal with the consortium," said Kardaya.
Although gas prices for the local market are lower than those for export, the French-based Total is required to prioritize gas allocation for the domestic market, as stated in its contract.
The government expects gas demand for the local market to soar in the near future, forcing it to reduce gas exports from Bontang to Japanese buyers when their contract expires in 2010.
Based on the current contract, Indonesia now delivers 12 million tons of gas to Japan every year.
However, after lengthy negotiations with Japan, Indonesia has agreed to deliver 3 mtpa of gas to Japan for a five-year period after 2010, and another 2 mtpa for the next five years.
As the world's largest LNG supplier, Indonesia will also seek to gain more profit from soaring global gas prices by reviewing its current contract with existing foreign buyers.
Kardaya said there was a plan to reallocate some of the gas from the Tangguh block for U.S. buyers to other foreign buyers willing to pay higher prices.
Under a 20-year contract, gas from Tangguh to U.S. buyers is priced at US$5.94 per million British thermal unit (mmbtu), lower than the current global price of $8 per mmbtu.
However, the contract allows gas reallocation to other markets if the supplier (Indonesia) agrees to pay a so-called diversion fee as a penalty.
"The price of gas in the U.S. market is now at about $8 per mmbtu and we still need to pay a diversion fee around $1 per mmbtu. So if we want to divert the allocation, we should ensure the price is higher than $8 mmbtu," Kardaya said.
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