BPMigas may build petrochemical facility

To increase downstream gas supplies for local industrial use, upstream oil and gas regulator BPMigas is looking to take up part of the gas reserves in the Tangguh gas field operated by British energy giant BP in order to supply a new petrochemical facility.

BPMigas chairman Raden Priyono said Tuesday on the sidelines of an international gas conference that it planned to use up to 3.7 trillion cubic feet (TCF) of uncommitted gas reserves from the Tangguh field to help supply fertilizer and petrochemical plants.

The reserves form part of the existing 14.4 tcf of proven gas reserves in Tangguh, located in the Bintuni Bay area in Papua.

“BP will drill to prove the existence of the reserves by the end of 2009,” Priyono said.

If the results are positive, the government will then build a petrochemical facility, including new fertilizer plants in Papua.

This project will be carried out as part of BP’s plan to build a third LNG gas plant unit, or gas train, for LNG exports.

Currently, BP has two trains operating in the region with a total capacity of 7.6 million tons of
LNG per annum.

BP has said the first gas would be ready for shipment in April, although the government is currently negotiating with Chinese buyers to increase the selling price, which was set relatively low under the initial contract.

Having secured orders from South Korea, China and the US, BP still plans to build additional trains to tap the vast gas reserves in the region.

It is also committed to supply part of the gas for downstream domestic market use.

Tangguh will sell LNG to overseas buyers — China’s Fujian, South Korea’s K-Power and Posco and to Sempra Energy on the west coast of Mexico.

Joko Harsono, BPMigas deputy chairman for fi nance, economy and marketing, said the plan to set up these petrochemical facilities was first aired after Vice President Jusuf Kalla’s visit to the Tangguh plant last December.

Kalla had requested BPMigas to build a petrochemical industry facility in the region to meet the increasing demand for fertilizer in the country.

The demand for fertilizer is expected to increase to 7 million tons this year.

The Tangguh gas field is being developed by a consortium of BP Plc, (37.16 percent), MI Berau (16.3 percent), CNOOC (13.9 percent), Nippon Oil (12.23 percent), KG Berau/KG Wiriagar (10 percent), LNG JapanCorporation (7.35 percent) and Talisman (3.06 percent).

Priyono also said the government is looking for more gas supplies for industrial needs in other gasrich projects like Masela in the Timor Sea.

He did not elaborate further whether the gas block operator, Japan’s Inpex, is required to allocate some of its gas reserves for domestic demand and local industry.

BPMigas expects the new block to start production by 2014 at a rate of 4.5 million tons per annum.

Indonesia is expected to see a rise in gas demand by 2.8 percent annually, reaching 6 billion cubic feet per day by 2020.

Source: The Jakarta Post

Pertamina, Medco to ink $16b deal for Japan

State oil and gas company PT Pertamina and publicly listed PT Medco Energi Internasional are due to ink a gas deal worth US$16 billion with a consortium led by Japanese diversified business giant Mitsubishi Corp.

The consortium will turn the gas in its Senoro plant into liquefied natural gas (LNG) for shipment to Japan. Mitsubishi has a 51 percent stake in the consortium, while Pertamina and Medco hold 29 and 20 percent, respectively.

Pertamina vice president Iin Arifin Takhyan said on Tuesday the planned signing on Jan. 22 was a follow up to a deal secured in August, in which Pertamina and Medco would supply 17 trillion cubic feet of gas for 15 years to the consortium.

The gas will be taken from the Senoro-Toili block, which is jointly owned by Pertamina and Medco, and the Donggi block, which is wholly owned by Pertamina.

The LNG plant has a total capacity of 2 million tons per annum and is expected to start producing by 2013 for export to Japanese companies Chubu Electric Power Co. and Kansai Electric Power Co.

Iin said the gas price would be determined under a formula where the price is set to trail oil price movements.

He did not elaborate further.

Medco Energi president director Lukman A. Mahfoedz said the consortium would decide the final investment required on the LNG plant project in February at the latest, before seeking loans to finance it.

Indonesia has three LNG plants; Bontang in East Kalimantan with a capacity of 18.5 million tons per year, Arun in Nangroe Aceh Darussalam with 12.5 million tons annually, and Tangguh in Papua with 7.6 million tons annually.

The Senoro plant will be the country’s fourth LNG plant, to be followed by an expected fifth one at the Masela project in the Timor Sea, where Japan’s Inpex is the operator.

Indonesia may produce about 20 million tons of LNG this year, excluding Tangguh.

Pertamina president director Ari H. Soemarno, as quoted by Bloomberg, said the gas price to Japan, linked to import costs of Japan’s crude oil basket, known as the Japan Crude Cocktail, would be $9 to $10 per million British thermal units based on crude oil at $100 a barrel.

US gas futures in New York were at $4.676 per million Btu at 3:53 p.m. Singapore time, said Bloomberg.

Chubu, Japan’s third biggest power utility, forecasts LNG purchases to stay unchanged this fiscal year as global recession cuts electricity generation in Japan, said Bloomberg.

The utility, which supplies power to Toyota Corp., may import 10 million metric tons of the cleaner-burning fuel in the year to March 2010, Yuki Kakimi, the company’s general manager of fuels, said.

“LNG demand will be sluggish for several years,” Kakimi said as quoted by Bloomberg. “LNG demand in the US and Europe will not be as strong as projected.

Source: The Jakarta Post

Local users will get more gas

The government will prioritize gas supply for domestic consumption rather than for overseas buyers in the coming years, a minister says.

Acting Coordinating Minister for the Economy Sri Mulyani Indrawati said during an international gas conference Wednesday that demand for the fuel in the country was expected to rise in line with growth in local industry and a growing middle class.

While being aware of a possible dilemma for gas companies in meeting demand for overseas buyers, Mulyani believed the government would have no other option than to prioritize the national interest.

“But I assure you that the tension (between exporting and supplying the domestic market) will not subside. It will get more tense,” she said, adding gas had been selected as a primary source of cleaner and cheaper energy to replace oil.

Hence, she urged gas producers to maintain production or even to produce more gas to meet demand for local and overseas markets.

Data from the Upstream Oil and Gas Regulator BPMigas shows that demand for gas will rise steadily at a rate of 2.8 percent annually, reaching 6 billion cubic feet per day by 2020. In 2007 demand only stood at 4.2 billion cubic feet per day.

In Java, where most industries are based, demand will increase by 4.9 percent annually, reaching 4.1 billion cubic feet per day by 2020.

This has left the government with no other option than to start thinking of allocating gas supplies to meet domestic needs since the bulk of gas production is now exported.

This policy is likely to affect overseas buyers who rely on gas supply from Indonesia, especiallyJapan and South Korea. Indonesia, the world’s third largest liquefied natural gas (LNG) exporter, is facing dwindling gas output due to depleting reserves, and lacks an extensive distribution network to help meet local demand.

The government has targeted gas production to reach 7.32 billion cubic feet per day this year, lower than last year’s production of 7.9 billion.

The share of total gas production used for domestic needs has increased significantly from 29.6 percent in 2002 to 49.5 percent in 2008, according to BPMigas.

BPMigas chairman Raden Priyono has said the government will rely on a number of big LNG projects in several places across the country to help increase total gas production in the coming years.

These include the Tangguh LNG plant in Papua, the Senoro LNG plant in Central Sulawesi as well as the development of the Masela gas block in the Timor Sea.

However, those projects are not sufficient to guarantee adequate local supply, as the present lack of a clear regulatory framework fails to ensure that gas producers will shift their production from exports to meeting domestic demand, energy analyst Pri Agung Rakhmanto said.

“We need a concrete regulation forcing supply for domestic market,” he said, adding that an article in the Oil and Gas Law requiring a domestic market obligation had not been enforced and many existing contracts did not comply with the law.

“The government should have revised those contracts,” he said.

He also suggested the government should intensify and promote the construction of downstream gas distribution infrastructure.

A consortium led by state oil and gas distributor PGN is in the process of building an LNG receiving terminal in Banten, with a total capacity of 3 million tons per year. The terminal is expected to start up operations by 2012.

Aside from infrastructure, pricing schemes should also be adjusted to make the buying price for domestic markets competitive with exports.