JAKARTA -
Just as the liquefied-natural-gas industry in the
Asia-Pacific region is poised for takeoff, Indonesia,
the world's biggest LNG producer, needs to import up to
30 cargoes of the fuel from rival suppliers to meet
contractual obligations with Taiwan, South Korea and
Japan, which consumes nearly three-fourths of the
region's total LNG supply.
Last year, Indonesia
had to buy spot cargoes from Qatar and Nigeria to supply
the same customers. These costly imports were also
needed to feed Aceh's major fertilizer producers, which
had to reduce their operations because of declining
output from fields that feed the massive Arun LNG plant
in Aceh.
The plant is 55% owned by state oil and
gas company Pertamina. Energy giant ExxonMobil supplies
some 1.5 billion standard cubic feet per day of gas to
Arun from its onshore and offshore fields and has a 30%
stake in the plant. ExxonMobil has said it will still
meet its commitment to ship 110 cargoes of LNG, or about
6.4 million tons, this year.
Combined production
from Arun and the Bontang LNG plant in Kalimantan is
about 34 million tons annually, though only 26.5 million
tons was exported last year - still a sizable chunk of
the total 77.5 million tons of LNG, worth nearly US$20
billion, sold to Asian markets. Of this total, 55.8
million tons was taken by Japan.
Consumption in
the Asia-Pacific is expected almost to double by 2015.
As LNG seems set for much higher demand and a future as
a commercially and environmentally attractive
mass-market fuel, Pertamina has been given back its
concession and authority to explore for, produce,
process and market LNG.
After the introduction
of Law No 22/2001 on oil and gas, aimed at
liberalization, the authority reverted to the
government, which then created a new entity, the Oil and
Gas Upstream Regulatory Agency (BP Migas). The 2001 law
allowed private investors to engage in the distribution
of oil and gas, which for decades had been the monopoly
of Pertamina.
BP Migas has now appointed
Pertamina as the sole agent to market LNG to these
traditional markets. Minister of Energy and Mineral
Resources Purnomo Yusgiantoro said on Monday the
decision was made in view of Pertamina's experience in
the conclusion and extension of gas sales contracts.
The future of LNG looks bright The
future for Indonesia's gas industry is highly promising,
with worldwide consumption of gas expected to more than
double by 2030, and natural gas likely to surpass coal
as the world's secondary energy source.
Over the
next seven decades, Indonesia may even usurp the Middle
East as the world's largest gas exporter. Major gas
deposits have been found in Papua and in many areas of
Sulawesi. Large gas deposits have been found in Java,
Bojonegoro and Seratung. South Sumatra also holds
significant deposits.
But despite these
significant natural-gas reserves, amounting to some 92.5
trillion cubic feet (tcf), the country at present still
relies on oil to supply about half of its energy needs.
Substantial but declining oil production has even seen
Indonesia become a net importer of crude oil after
output recently fell below a million barrels per day.
Proven oil reserves of 5 billion barrels are
predicted to run out in 10 years at current production
rates of 350 million barrels per year. Proven
natural-gas reserves, on the other hand, will not be
exhausted for 30 years at the current annual production
rate.
An average of 2.8 tcf of natural gas is
produced in Indonesia every day. Some 1.5 tcf is
exported in the form of piped gas, LNG and liquefied
petroleum gas (LPG), with the remainder used for the
domestic market.
As oil production has leveled
off, efforts have been made to shift toward using
natural-gas resources for power generation. However,
distribution and transmission of natural gas have been
hampered by a lack of infrastructure. Also, as in most
of Asia, the distance of many demand centers from major
gas fields has limited gas supply in Indonesia.
The government has recently issued interim
permits to nine companies to distribute natural gas for
industrial consumers. Most of these companies operate in
West Java, where the country's main industrial belts are
located. Since the companies have little infrastructure,
they are being allowed to use gas pipelines owned by
state gas-distribution firm PT Perusahaan Gas Negara.
Once pricey, now prudent
alternative LNG has been an expensive option in
the past, unable to compete with oil-based fuels in the
Indonesian domestic market because of the government's
subsidy policy. Now, as the government is gradually
scrapping the fuel subsidy, LNG looks like a viable
alternative fuel for the local market, though massive
investment will be needed for receiving terminals and
deliquefaction facilities.
At its destination,
LNG can be converted back to natural gas and used to
fuel power plants. State electricity company PLN wants
to reduce its dependence on coal for power generation
and has just signed a cooperation agreement with
Pertamina on the construction of an LNG terminal at
Cilegon in West Java. The terminal, which will process
gas to operate nearby steam-fired electricity turbines,
needs an investment of up to $300 million.
Pertamina has discovered huge gas reserves in
Donggi in Sulawesi and also plans to build an LNG plant
there, expected to come online in 2010. Officials are
also considering the feasibility of developing an LNG
terminal at the Marsela offshore gas discovery east of
Timor in the Arafura Sea. The Marsela prospect is
operated by Japanese exploration firm INPEX and has
estimated gas reserves of 3 tcf.
There are
currently more than 40 existing and proposed LNG plants
around the world, and the massive Tangguh LNG project
being developed by a consortium led by Anglo-British
energy giant BP Plc, in the Bird's Head area of Papua,
will be Indonesia's third plant.
The bulk of
Indonesia's total LNG exports go to Japan other than
some 30% to South Korea and Taiwan. However, as more
offshore projects come online over the next five years
and BP builds its Tangguh LNG plant, the country's
traditional role of supplying these three markets will
be expanded as North America takes more LNG from the
Asia-Pacific.
BP and its partners, including
CNOOC Ltd, China's largest offshore oil company, may
invest as much as 40% in equity for the Tangguh project.
It will have a capacity of 7 million tons per annum, and
aside from boosting the country's LNG output, will
generate revenue for Papua, one of the poorest regions
in the country.
International
aspirations China may build up to nine LNG
terminals in the next few years to promote the
consumption of cleaner fuels, including one near Beijing
by 2008, when the city hosts the Summer Olympic Games.
In September 2002, China awarded an $8.5 billion LNG
contract to Indonesia to supply its planned terminal in
Fujian province for 25 years, beginning in 2007.
Last December BP Migas and BP Indonesia signed
an agreement with US-based Sempra Energy to supply 500
million cubic feet a day of LNG from the Tangguh
project. Under the agreement, 3.7 million tons of LNG
will be delivered annually from Tangguh, beginning in
2007, to Sempra's proposed LNG import and
re-gasification terminal near Ensenada in Baja
California, Mexico. BP's partners in the Tangguh project
are MI Berau BV (held by Mitsubishi Corp and INPEX Corp)
with 16.30%; CNOOC with 12.50%; Nippon Oil Exploration
Berau with 12.23%; BG Group with 10.73%; KG Companies
(held by Japan National Oil Corp, Kanematsu Corp and
Overseas Petroleum Corp) with 10%; and LNG Japan Corp
(held by Nissho Iwai Corp and Sumitomo Corp ) with
1.07%.
Mitsubishi's stake in the Tangguh project
has driven its application to the US Federal Energy
Regulatory Commission and California's Port of Long
Beach Authority for a license to build a terminal to
receive Indonesian LNG in southern California. The $400
million facility could accommodate 5 million tons per
annum, could meet about 10% of California's demand and
could be completed by 2007.
To meet its long-term
energy needs, Singapore is also planning to establish an
LNG terminal to secure the supply of what is forecast to
be the island's main fuel. The plant would enable
Indonesia to send more gas to Singapore from other parts
of the country in the form of LNG.
Singapore has
been buying Indonesian natural gas delivered through
underwater pipelines from Sumatra and West Natuna, but
the amount of gas that can be transmitted in this way is
limited. A recent disruption of this supply, which led
to a blackout in the western part of Singapore, has
caused concern there.
A decision on the project
will be made after a feasibility study commissioned by
the Ministry of Trade and Industry to determine the
project's economic viability. If it goes ahead, the
project is expected to cost at least S$1 billion (US$588
million) and would take five years to build.
Under new legislation enacted this year, 25% of
Indonesia's oil and gas must be sold on the domestic
market. If LNG is to play a major role in the
development of the domestic market while earning
precious foreign exchange, Jakarta needs to secure
additional financing for the multibillion-dollar costs
of production facilities, upstream gas fields, shipping
and re-gasification plants.
The government's
main dilemma will be how to balance national interests,
a controversial issue to say the least after regional
autonomy, with the need to lure investors into the
lucrative gas sector.
The adverse social and
political costs of developing natural resources in a
country where the infrastructure is adequate, but
governance is weak and there is precious little sanctity
of contract, at least in the eyes of foreign investors,
makes this an extremely tough nut to crack.
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