RI to rely more on natural gas, coal to cut oil dependence

Rendi A. Witular, The Jakarta Post, Jakarta

The declining oil production in the past decade has prompted the government to encourage local industrial plants to prepare to start largely depending on natural gas and coal for energy needs within the next few years.

Coordinating Minister for the Economy Aburizal Bakrie announced during a press conference on Tuesday at the State Palace that the government expected an increase in demand for coal and natural gas once it began cutting petroleum-based fuel subsidies.

"We want companies like cement makers to use alternative sources of fuel, such as natural gas and coal, which are abundant," he said. "In the future, all gas and coal production should be supplied primarily to the domestic market. As for exports, the government will only supply to buyers, who have signed deals for the product."

The gradual slashing of petroleum-based fuel subsidies will eventually lead to increased prices for diesel fuel and gasoline, forcing consumers -- both companies and individuals -- to seek alternative energy sources, such as gas and coal, which are generally less expensive, Aburizal said.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the first concrete action to support the push toward alternative fuels was by giving U.S. energy giant ConocoPhillips (COP) the green light to develop gas field "A" in Aceh.

Gas from the Aceh field would be entirely allocated for supplying state-owned fertilizer companies PT Asean Aceh Fertilizer and PT Pupuk Iskandar Muda I and II, as well as other industrial plants in Sumatra, he added.

Field A is expected to be fully operational by 2008.

"Production from the field will not be allocated for export. We will negotiate with COP so the government can ensure that over 55 percent of the field's output goes to fertilizer companies," said Purnomo, adding that the natural gas sold to the companies was still subject to government subsidies.

The government will also rely on natural gas supplies from Bontang, East Kalimantan, to supply industrial plants in Java, the country's main business island, and to its nearby industrial areas.

Purnomo said the country's natural gas reserves (proven and potential) currently stood at 188 trillion cubic feet (TCF), but these were still largely untapped due to limited supporting infrastructure, including distribution and transmission lines.

In 2003, Indonesia's total natural gas output by state oil and gas company Pertamina and production sharing contractors reached a mere 3.3 TCF, some 90 percent of which was exported.

As for the country's coal reserves, Purnomo said it had reached more than 100 years at present, with most of the high- calorie coal exported.

"With the use of natural gas and coal by domestic industry and households, we expect the use of petroleum-based fuels by the domestic market to be significantly reduced, thus allowing the government to increase its oil exports for higher revenues," said Purnomo.

Indonesia's crude oil exports dropped to 30,000 barrel per day (bpd) in 2004 compared to 100,000 bpd in 2003. The Central Statistics Agency (BPS) said oil and gas imports -- including both crude oil and oil products -- increased sharply by 52.36 percent in 2004.

The increasing imports were due to declining oil production from the country's aging oil fields and rising domestic demand of up to 7 percent per year.

Such a condition has called into question the government's membership within the influential Organization of Petroleum Exporting Countries (OPEC) as it is closer to being a net oil importer.