Demand for LNG is rising as some countries increasingly shift from oil to natural gas for their energy needs. In 2005, 178bn cu metre miles were traded globally, compared to 88bn cu miles in 1995. Cubic meter miles are calculated as quantity of cargo multiplied by the number of nautical miles carried. As more LNG facilities are built around the world – China and the US are two major countries investing in domestic LNG terminals – demand is expected to rise further.
In 2005 Indonesia exported 31.5 billion cu metres (bcm) of LNG. Malaysia was second top exporter with 28.5bcm and Qatar was third with 27.1 bcm. Indonesia may be the world’s largest exporter, but it ranks only 11th in terms of natural gas reserves. The national gas balance announced by the government in May shows that a gas supply deficit will occur over the 2007-2015 period in almost all parts of Indonesia. Decreased production at some plants combined with the government’s decision to increasingly divert gas for domestic supply to cover its own energy needs means that the country’s position as top global exporter is in jeopardy.
To counteract declining production of LNG, Indonesia is keen to secure more investment in the energy sector. According to Luluk Sumiarso, the director general of oil and gas at the ministry of energy, around 40 oil and gas blocks will be offered for tender in 2007.
Moreover, the government is looking to sign production deals with firms to extract gas from coal seams. Purnomo Yusgiantoro, the minister of energy, told the media last month that production of coal seam methane could help increase the country’s LNG exports and gas availability.
“We would use CBM (coal bed methane) for domestic consumption, then we can export more natural gas. We hope CBM can double our domestic production,” he said.
Last week, Australian coal seam gas company WestSide Corporation signed an agreement with Indonesia’s Bumi Resources Tbk (Bumi) allowing it to work with Bumi’s subsidiary Kaltim Prima Coal (KPC) to evaluate and develop coal seam gas (CSG) prospects in what WestSide’s chief executive officer Stephen Cullum described as “a world class mining facility sitting on a potentially significant, but untested, gas reserve.”
To boost gas production and offset declining output from other facilities, officials are also banking on the Tangguh LNG plant under construction in West Papua. By March this year, the $5bn project had reached 70% completion. The date at which the plant will come online has been brought forward to 2008. BP Indonesia has a 37.16% stake in Tangguh and is the operator of the project under a production sharing contract with BP Migas (the Indonesian regulatory body for oil and gas upstream activities). The multi-billion dollar project is due to supply the Fujian LNG project in China, Korea’s K-Power Co. and POSCO, and Mexico’s Sempra Energy LNG Marketing Corp.
Last year, the Asian Development Bank (ADB) provided a $350m loan to Tangguh, its first private sector project in Indonesia’s oil and gas sector.
“LNG export is a significant earner of foreign exchange for the country. The Tangguh LNG Project is expected to be Indonesia’s third primary LNG centre, which will help to maintain the country’s leadership in the world LNG market and secure stable revenues from LNG exports in the future,” Sherwin Pu, an investment specialist in ADB’s private sector operations department told OBG.
Last week, BP Indonesia announced that discussions were underway with investors to build a third processing train at Tangguh. Eddy Purwanto, the deputy chairman for marketing and finance at Upstream Oil and Gas Executive Agency (BP Migas), told the media that BP would try to form a new consortium of global and domestic lenders in July to provide an additional $880m to complete construction at Tangguh. BP Migas would act as a third party player, ensuring compliance with regulations. The site can support up to eight LNG processing trains.
Korea Gas (KOGAS), the world’s biggest LNG buyer, expressed its interest in participating in the new LNG project at Tangguh as well as taking part in the bidding process for upstream exploration and production activities. The company imports around 5m tonnes of LNG from Indonesia annually and is looking to increase its total purchase of LNG for this year.