Pertamina Flags $40b Investment in Riau Gas Project

Jakarta Globe, Ririn Radiawati Kusuma, September 05, 2011

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State oil and gas company Pertamina and its partners expect to spend up to $40 billion to develop a gas block in western Indonesia, a company official said on Monday.

Muhammad Husen, director of upstream business at Pertamina, said the huge cost would include investment for exploration, exploitation and gas transportation system.

“The $40 billion cost is the original budget. It can be increased or reduced,” Husen told reporters on Monday.

The East Natuna block in Riau Islands contains about 200 trillion cubic feet of gas and would be the largest gas reserve in Indonesia, according to US oil giant Exxon Mobil. But only 45 trillion cubic feet can be taken because extracting the remainder, with its high carbon content, would be too costly.

Pertamina will cooperate with three other oil and gas companies: Malaysia’s Petronas Carigali, France Total E&P Indonesie and US ExxonMobil Indonesia.

Divvying up the composition of the stakes in the gas block has not been decided. Husen said last month that the ownership stake is expected to be determined in October and the production-sharing contract will be signed on Oct. 28.

A PSC typically stipulates the sharing of revenue between the companies and the government. It also sets tax incentives, tax obligation and cost recovery.

It was not clear whether this East Natuna gas block would be the biggest investment in Indonesia’s oil and gas history.

The East Natuna gas block will require advanced technology to extract natural gas. Last month, Husen said Pertamina and its partners were confident that they have enough expertise and technology to harvest gas from the block.

Total investment to develop the Masela block in Timor Sea and to build the LNG floating terminal is estimated at $19.7 billion upon completion in 2016.

The cost to develop the East Natuna project may be less than the estimated budget, at about $20 billion, Husen said.

“The $20 billion cost is our calculation for using the gas pipeline to deliver the gas,” Husen said. The cost will rise should the delivery system to channel the gas be processed by the LNG plant, he said, though that may depend on the government’s objective.

The consortium, Husen added, has several possible plans for Natuna, including delivering gas through a pipeline to Sumatra and Java. Some of the gas will be sold to Malaysia, he said.