Page 2 of
2 Indonesian gas potential burns
dimly By Bill Guerin
increase Indonesia's annual oil
output by 18% and potentially push the country
back to a net oil-exporting status, and about 11
trillion cubic feet of potential gas reserves,
ExxonMobil accepted the amended terms rather than
pulling out.
Unreliable supplies For more than 25 years Indonesia, through
Pertamina, dominated the region and led the global
LNG market as the world's largest
exporter. But a number of
nationalistic policy signals have recently
alienated new foreign investors and inhibited the
country's ability to tap new supplies efficiently.
Last year, Qatar bypassed Indonesia as the world's
largest LNG exporter.
This year the
government has said it will slash LNG exports to
traditional major buyers in Japan and South Korea
(currently the world's two largest LNG importers)
and also to Taiwan from the contracted 26.4
million tons down to 21.4 million tons. Jakarta
has also said it cannot guarantee a contractual
extension to supply 12 million tons annually to
Japan's Kansai Electric Power, Chubu Electric,
Kyushu Electric, Osaka Gas, Toho Gas and Nippon
Steel Corp when the deal runs out in 2011. Tokyo
Electric Power Co, Japan's biggest electric
utility, has recently said it will not renew its
long-term agreement to purchase LNG from Indonesia
when it expires in 2009.
Ironically,
Indonesia's two existing LNG plants at PT Arun in
Aceh and PT Badak at East Kalimantan were built in
the late 1970s under supply contracts with Japan.
Natural gas is condensed at these facilities by
refrigerating it to one-600th of its volume for
shipment in tankers, and import terminals reverse
the process, allowing gas to flow through
pipelines. A third facility, at Tangguh in West
Papua, currently operated by Anglo-American BP
with Chinese and Japanese shareholders, is
expected to come online next year and will be one
of the world's largest LNG projects, with a
production capacity of 7.6 million tonnes a year
from two separate units.
All of this
sparring and backtracking with foreign investors
and buyers significantly comes against the
backdrop of Pertamina's plans to list on the stock
exchange by the end of next year and establish
itself as a global energy player. Notoriously
corrupt, Pertamina almost brought Indonesia to its
knees in the 1990s by running up massive debts of
more than $10.5 billion, or some 30% of gross
domestic product. Change is in the cards, however,
and the government recently hired international
management consultants McKinsey & Co to
improve the state concern's corporate governance
and accounting procedures.
President
director Ari Soemarno, who was appointed last
March after his predecessor's uncompromising
stance in negotiations with ExxonMobil over Cepu,
said last week that he is determined to transform
Pertamina into a competitive, modern and respected
company. Pertamina expects to earn $40 billion in
revenue this year and hopes to double output in
the next four years.
Currently up to 45%
of its profits go back to the government as
dividends. Regulatory uncertainty - particularly
concerning Pertamina's authority over the
country's oil and gas reserves - still cloud the
company's prospects. Oil and Gas Law No 22/2001 in
October 2001 stripped Pertamina of its longtime
monopoly over the national energy industry, giving
control over oil and gas fields to the government.
The state-run company is, however, still bidding
to operate many of the richest areas as a
production-sharing contractor with the government.
Yet for most of the country's untapped
reserves, Pertamina is not in a position
financially or technically to go it alone.
Industry analysts contend that the high
carbon-dioxide levels of the natural-gas deposits
discovered at Natuna D-Alpha would make it
difficult for technically challenged Pertamina to
extract efficiently. The same analysts say
developing the Alpha B block would require upwards
of $25 billion in capital investments - a sum
beyond all local companies' financial reach.
At the same time, the need to start
exploration for new gas reserves and to commence
production on proven sites is paramount for the
sector's viability. That said, many politically
connected Indonesian operators are nonetheless
pursuing a much larger stake in exploiting and
delivering the country's energy resources. In the
gas sector, for example, Indonesia's biggest
publicly traded oil-and-gas company, PT Medco
Energi Internasional Tbk (Medco), together with
Pertamina, plans to build a new LNG facility at
Sulawesi underpinned by proven gas reserves of 2.4
trillion cubic feet.
PT Bakrie &
Brothers, Indonesia's top conglomerate, which is
controlled by the family of Aburizal Bakrie, the
country's welfare minister, was in July awarded a
$1.26 billion tender from the regulator of the
downstream oil-and-gas industry, BPH Migas, to
build and operate a 115-kilometer gas pipeline
linking East Kalimantan and Central Java. The
tender, critics note, was awarded without a
competitive bidding process.
The country's
proven gas reserves will last for 60 years at
current production rates, and with global prices
on the rise, LNG exports represent one of
Indonesia's biggest economic hopes. Major regional
neighbors such as China and Japan share a common
strategy to secure energy supply and reduce their
dependence on Middle East oil imports. And there
is a growing global premium on LNG as a
cleaner-burning fuel source than oil or coal.
But by replacing proven, deep-pocketed
multinational energy companies with less qualified
local producers - as it appears the government is
promoting through its increasingly nationalistic
moves - Indonesia's oil-and-gas industry and the
entire economy seem destined to underperform.
Bill Guerin, a Jakarta
correspondent for Asia Times Online since 2000,
has been in Indonesia for more than 20 years,
mostly in journalism and editorial positions. He
specializes in Indonesian political, business and
economic analysis, and hosts a weekly television
political talk show, Face to Face,
broadcast on two Indonesia-based satellite
channels. He can be reached at
softsell@prima.net.id.
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