On March 25, 2011 the Sangatta West project in East Kalimantan was the first dedicated coal bed methane (CBM) well in Indonesia to successfully release gas trapped approximately 830 metres below the surface. The implications of this milestone go far beyond the relatively small amounts of methane gas released from test well SCBM#1, as the country is estimated to house an estimated 453trn cu feet of the gas.
SIGNIFICANT EFFECTS: With more than four times as much estimated natural gas than all of the country’s proven natural gas reserves combined, CBM has the potential to significantly affect Indonesia’s energy landscape far into the future. The government is targeting CBM production of 500m cu feet by 2015, increasing to 900m cu feet by 2020 and 1.5bn cu feet by 2025. Indonesia’s CBM reserves are divided into a number of separate reservoirs, or basins, including North Sumatra, with estimated reserves of 52.5trn cu feet, South Sumatra, with 183trn cu feet and Jatibarang, with 800bn cu feet, according to data from Indonesian oil and gas regulator BPMIGAS. “The most prolific areas for development of CBM are in South Sumatra as well as East and South Kalimatan, which represents over 80% of the potential resource," said Sammy Hamzah, the vice-chairman of the Indonesia Petroleum Association. "The East Kalimatan and South Sumatra basins are very well developed and have good infrastructural support, with many oil and gas companies already operating in the area. If you can prove the availability of gas, it will only take a short time to bring the gas to market.” A joint venture between Ephindo Energy (with a 24% share), Australia’s Dart Energy (formerly Arrow Energy, 24%), and state-owned PT Pertamina Hulu Energy Metana Kalimantan-A (52%), Sangatta West is in the most advanced stage of development of the five CBM projects nearing commercial production. Sangatta West has completed four test wells at the site since 2008. The other four working areas nearing initial production phases are the CBM Sekayu, operated by Medco Energy International; Tanjung Enim by Arrow PTE; Bariot Banjar by Indobarambai; and Sanga-Sanga, operated by Vico. Each of the working areas have an estimated projected output of 1m standard cu feet per day (scfd), with the Sanga-Sanga area producing 50% more at 1.5 scfd, according to BPMIGAS. If all operations prove viable, their combined output of 5.5m scfd could fuel electricity generation of approximately 13.75 MW.
EARLY DEVELOPMENT: In these early stages of CBM development, the gas resources will initially be used primarily to fuel small-scale electrical power generation, particularly in more remote areas previously dependent on more expensive diesel-fired power plants. Gas for SCBM#1, for example, will be sold to GE and local power supply company Navigat to power a small gas-fired generation plant to help power the currently undersupplied local electricity grid.
By using CBM gas in a combined-cycle thermal power plant it is possible to emit 50-70% less carbon dioxide when compared to conventional coal-fired power stations, according to Hamzah. In addition to producing significantly less harmful emissions than conventional coal- and diesel-fired plants, CBM is also beneficial in terms of the bottom line. The methane is extracted from depths of no greater than 1000 metres and therefore requires smaller, cheaper and less environmentally invasive drilling operations.
MAJOR PLAYERS: In the 2008-11 period, 32 CBM contracts had been signed by the government with a total value of firm investment commitment of $213.37m, according to BPMIGAS. Most of these projects are centred around South Kalimantan and central and southern Sumatra. An additional eight direct-proposal production-sharing contracts (PSCs) were issued for tender in late 2011. These included the Bangkanai 1,2,3 and 4 Blocks; the Kuala Kapuas 1 and 2 Blocks; the Tanah Laut Block; and the West Sanga-sanga 1Bblock. Each tender allowed for a government-contractor split of 55:45 with 100% cost recovery.
So far, the primary companies committed to developing early CBM projects include the aforementioned Ephindo, Pertamina and Dart Energy, along with energy giant BP through its subsidiary Vico and international energy company PT Medco.
Indonesia’s national energy champion PT Pertamina is one of the companies now leading the CBM charge with six CBM PSCs signed since 2008. These include two PSCs signed in 2010 for the Muara Enim I Block in South Sumatra, managed by subsidiary Methane PHE Sumatra II, and the Tanjung I Block area 2 in South Kalimantan, managed by PHE Metan Cape II. Local player Ephindo has also secured three CBM PSCs along with the Sangatta West project.
BP and Italy’s ENI have formed the Vico partnership with respective shares of 38% and 62% in order to pursue various oil and gas ventures in Indonesia and entered into the CBM market via the 2009 Sanga-Sanga CBM PSC in East Kalimantan. Vico upped its participation considerably in April 2011 through four new CBM PSCs for projects in the Barito basin of South Kalimantan. These include the Tanjung IV Block in which BP entered into a 44:56 partnership with Pertamina, as well as the Kapuas I, II and III CBM PSCs, for which the company has a 45:55 partnership with Sugico. Other companies in the sector include CBM Asia Development Corporation and Newton Energy Capital, which are jointly developing a project in the Kutai block in Eastern Kalimantan under the Kutai West CBM banner.
JUMP START: Since the CBM movement began picking up steam in 2008, the government has been teaming up with the private sector in order to bring CBM energy sources to the market as soon as possible.
One of the ways in which the government has attempted to boost investor interest is by offering favourable profit-sharing arrangements. While conventional oil and gas production-sharing agreements generally consist of 85:15 and 70:30 profit-sharing ratios, respectively (more equitable for frontier and higher-risk areas), normal CBM splits are 60:40 for the government and can go as high as 55:45.
BY THE RULES: Government Regulation 36 (GR36) passed in 2008 also creates another incentive designed to increase both initial investor interest in the CBM sector as well as accelerate existing agreements. Some of these regulations include the option to enter into a new gross production-sharing contract with the government, under which production is divided equally between the government and the contractor.
Despite the enactment of previous legislation including GR36, a number of issues relating to CBM are still being resolved. Due in part to its relatively new arrival to the energy scene, CBM regulations are being created from the ground up and the resulting governing framework, which draws upon both the electricity and hydrocarbons sectors, remains a work in progress. Permit and administration details being discussed include land use issues such as overlapping claims with preexisting operations in the coal, forestry, plantation and residential land areas. Further clarification is also required for numerous environmental regulations such as standardising waste treatment for CBM and establishing procedures for environmental impact analysis.
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