Exxon, Chevron in $6.76b deal to feed gas-hungry local market

Ika Krismantari, The Jakarta Post | Fri, 01/23/2009 7:43 AM  

Global energy giants, including ExxonMobil Corp and Chevron Corp, on Thursday signed deals worth US$6.76 billion with domestic industries to supply gas. 

The signing took place at the fourth international gas exhibition and conference in Jakarta. 

Under the deal, Exxon has agreed to supply gas to fertilizer and related products giant PT Petrokimia Gresik and state electricity company PT PLN in deals worth $1.4 billion and $1.7 billion, respectively. 

Exxon will deliver the natural gas from the Cepu block, where the oil giant acts as the operator in cooperation with state oil and gas firm PT Pertamina. 

However, it is not yet clear how much gas will be delivered. 

Chevron and its partners under the East Kalimantan production sharing contracts will supply gas to fertilizer producer PT Pupuk Kaltim in the province at an estimated value of $1.6 billion. 

Thursday's signings mark stronger commitments from foreign oil and gas companies operating in Indonesia to supply part of their gas output to the domestic market. 

A day earlier at the conference, Finance Minister Sri Mulyani Indrawati revealed the government’s plans to prioritize gas production for domestic consumption rather than for export in the coming years. 

She said this was because local consumption was expected to continue rising in line with growth in local industries and a burgeoning middle class. 

While aware of the possible dilemma facing gas companies in meeting demand for overseas buyers, Mulyani said she believed the government had no other option than to prioritize the national interest. 

Mulyani, who is also acting coordinating minister for the economy, urged gas producers to maintain production or produce more gas to meet local and overseas demand. 

Estimates from the country's upstream oil and gas regulator, BPMigas, show national demand for gas is set to rise steadily at a rate of 2.8 percent annually, reaching 6 billion cubic feet per day by 2020. 

In 2007, demand stood at 4.2 billion cubic feet per day. 

In Java, where most industries are based, demand will increase by 4.9 percent annually, reaching 4.1 billion cubic feet per day by 2020. 

In light of this progressive trend of gas domestic needs, the government has significantly increased the gas supply portion for domestic industries from 29.6 percent in 2002 to 49.5 percent in 2008, according to BPMigas. 

Indonesia, the world’s third largest liquefied natural gas (LNG) exporter, has been trying to in-crease its gas production to meet both foreign and domestic needs. Ironically, gas production has been on a downward trend for the past several years, due in part to aging fields. 

This year’s production, for instance, is expected to reach 7.3 billion cubic feet per day, lower than the 7.9 billion cubic feet per day recorded in 2008. 

BPMigas chairman Raden Priyono said the government would rely on a number of big LNG projects to help increase national gas production, including the Tangguh LNG plant in Papua, the Senoro LNG plant in Central Sulawesi, and the development of the Masela gas block in the Timor Sea.