With growing domestic demand straining energy supplies, Indonesia has begun importing liquefied natural gas (LNG) and will focus on coal-bed methane development to fill the gap.
With an estimated 450 Tcf of potential natural gas resources from coal-bed methane (CBM), Indonesia is pushing exploration and development of CBM to meet increased domestic demand for gas and contractual requirements for LNG exports.
“CBM resources may have greater potential than conventional gas,” said R. Priyono, chairman of the executive agency for upstream oil and gas business activities, BPMIGAS. “These resources are important and vital for Indonesia to meet domestic demand in a global market.”
Priyono told participants in the World Gas Conference 2012 on June 6 in Kuala Lumpur, Malaysia, that to develop resources, total upstream oil and gas spending over the next five years will reach $55 billion. About 20% of the capex will be for developing production assets.
CBM will play an increasing role in boosting natural gas supplies. Already, CBM production is supplying the Bontang LNG plant — the world’s first CBM-to-LNG project.
However, the major problem facing Indonesia is that the resources are located far from the demand centers. The country needs major natural gas infrastructure development, Priyono explained.
Infrastructure projects include pipelines and LNG terminals. Indonesia will continue to build pipeline infrastructure on Sumatra and Java.
The first LNG import terminal was built to serve west Java. The floating, storage and regasification unit (FSRU) received its first cargo from the Bontang LNG plant in April.
The terminal is also an example of the gaps in infrastructure. It provides gas to a local power plant. However, it is not connected to the main gas pipeline. That link would provide greater flexibility for LNG supply in the domestic market, he said.
“We have other FSRUs in advanced stages of planning. We have won several LNG spot cargoes. If the FSRU isn’t ready to go, we can re-export the LNG,” Priyono noted.
While infrastructure projects are important to deliver gas where it is needed, Indonesia has to boost its gas production to fill the gap between supply and demand while maintaining its revenue-generating exports and providing fair returns to investors.
There are four needs that its domestic natural gas must fill. First, natural gas is used for heavy oil production. Gas is burned as fuel for EOR steamfloods.
Second, gas supports the food industry. Fertilizer production depends on natural gas. Third, gas would be used for power generation as a replacement for gas-oil. Finally, gas would supply general industry, Priyono stated.
Prices are a key factor in developing domestic reserves. As he noted, gas prices are moving up. New contracts for fertilizer production are at $6/MMBtu plus escalation clauses.
LNG prices, on the other hand, are oil linked. That price is 0.11 of Indonesia’s crude oil price. If oil is $100/bbl, then the LNG price is $11/MMBtu. “The gap between domestic and export prices has narrowed,” he emphasized.
Higher gas prices provide the incentives for foreign companies to invest in oil and gas projects. Indonesia is seeking foreign investment — and not just in oil and gas.
A priority for the country is to develop industry or find companies willing to move to Indonesia. “Energy exports would provide a multiphase effect,” Priyono said. “Natural gas could contribute more as fuel and a catalyst for economic activity.”
And, Indonesia demand will continue to grow. Real GDP grew 6.4% in 2011, he noted. Similar growth is forecast for 2012-13. The International Monetary Fund expects Indonesia to be the fifth largest economy in the world by 2015.
Contact the author, Scott Weeden, at sweeden@hartenergy.com.
