Govt awards two local firms with CBM projects

The Jakarta Post, Jakarta | Fri, 06/27/2008 10:06 AM

On the same day the government awarded two companies with coalbed methane (CBM) contracts, a seminar Thursday revealed the price of the commodity was still not attractive enough to lure more investment.

PT Ridlatama Mining Utama won a contract to extract gas from coal seams in a block in East Kalimantan, while PT Samantaka Mineral Prima will develop a block in Riau province.

R. Priyono, chairman of oil and gas regulator BPMigas, said the companies would spend a combined US$13 million to develop the areas over the first three years.

Ridlatama will keep 45 percent of its revenue from CBM sales, while Samantaka will take 40 percent, with the government pocketing the remainder, Priyono said.

Indonesia has one of the largest coalbed methane reserves in the world, boasting a potential of 453 trillion cubic feet of the commodity, or double the country's natural gas reserves, according to Bloomberg.

CBM is formed at great depths under the Earth's surface, where immense pressures compress methane into a near-liquid state, allowing it to be absorbed by coal. Coal reservoirs can store as much as five to six times more gas than those formed of regular rock.

Once it has been mined, CBM is refined into natural gas.

However, due to high extraction costs, CBM development remains slow in Indonesia, the seminar was told.

Budi Basuki, president director of domestic oil and gas company PT Medco Energi International, said at current global prices contractors made only minimal profits or just broke even.

"CBM has great long-term prospects due to its huge reserves, but players also look at the price," he said during an international CBM conference in Jakarta.

"I'd say if CBM, which has the same end product as natural gas, is priced at $5 (per million British thermal units (MMBtu)) at wellhead, it will be more interesting," he said.

Medco, in partnership with local company Ephindo, won the first CBM tender last month to operate on its own oil and gas field in South Sumatra.

All of the produce from the site will be sold on the domestic market, at a lower price than if it were exported.

Natural gas designated for power and industrial plants in South Sumatra sells at between $2.5 and $3 per MMBtu, while that piped to power plants in Java is priced at between $3.5 and $4 per MMBtu.

However, a field in Natuna, Riau Islands, operated by PremierOil, sells the commodity to a power plant in Batam at $5 per MMBtu, but fetches $11 per MMBtu for exports via pipeline to Singapore.

Liquefied natural gas sold to Japan, Korea and Taiwan from Bontang, East Kalimantan, is priced at between $9 and $10 per MMBtu.

The international futures price for natural gas is at $12.7 per MMbtu.