Companies eye CBM projects in Indonesia

Ika Krismantari, The Jakarta Post, Jakarta

As many as 50 companies, including Royal Dutch Shell and state oil and gas firm PT Pertamina, have submitted proposals to the government to develop coal-bed methane (CBM) projects in the country, an official says.

Priyono, the director of upstream oil and gas development at the Energy and Mineral Resources Ministry, said Friday the ministry was evaluating proposals for a joint study of CBM areas in South Sumatra and Kalimantan.

In addition to Pertamina and Shell, state-owned coal producer PT Bukit Asam (BA) is also included in the list, said Priyono, adding the evaluation process is expected to be completed within three months.

The projects, if they materialize, would add to another CBM project currently being developed in the country, namely that in South Sumatra, which is being jointly developed by PT Medco Energi Internasional.

Energy and Mineral Resources Minister Purnomo Yusgiantoro has been calling investors to look into and develop this source of untapped energy since last year, amid declining oil production caused by aging fields and lack of new explorations.

Indonesia reportedly has the world's second-largest CBM deposits after China, with a total potential reserve of 453 trillion cubic feet.

Despite a massive reserve, CBM -- natural gas produced by microbes during the coal-forming process that become trapped in coal beds -- needs significant investment to be developed.

The development process would require the so-called de-watering -- draining water from the coal beds -- which can take months or sometimes even up to a year to carry out.

Provided certain incentives are offered to investors, the government is confident it could rake in up to US$2.5 billion in investment to develop 90 CBM wells, which are expected to produce up to 100 million cubic feet of gas per day by 2014.

Luluk S. Sumiarso, the ministry's oil and gas director general, recently announced an incentive formula to encourage CBM explorations in the form of favorable production splits.

Under this formula, CBM investors will be given a 45 percent share of production, while the government will take the remaining 55 percent; higher than the normal production split of 15 percent and 30 percent, respectively, for oil and gas producers.

In another development, Priyono also revealed the government would open a tender for 40 oil and gas blocks this year.

He said the tender would be delivered in two rounds, in May and October.

The blocks on offer would consist of new blocks and old ones -- mostly those that were put on offer in previous tenders but failed to draw investor interest.