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NEWS UPDATES Asean Affairs                       20  August 2011

Pertamina looks for help to develop natural gas

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State-owned energy firm Pertamina has asked the government for financial incentives to develop a block in western Indonesia that requires advanced technology to extract natural gas.

Muhammad Husein, director of upstream business at Pertamina, said on Friday that despite Pertamina and its partners being confident they have enough expertise and technology to harvest gas from the block, incentives were needed as “development requires a big investment.”

The block is located in East Natuna, in the Riau Islands, which are home to the largest gas reserves in Indonesia — about 200 trillion cubic feet, according to Exxon Mobil. But only 45 trillion cubic feet can be extracted because high carbon content makes the remainder too costly.

The gas production is crucial to help meet local demand for gas as Indonesia still has a supply shortfall of 2.5 billion standard cubic feet of gas per day.

On Friday, the Energy Ministry signed an in-principle agreement with Pertamina and its partners that allows oil and gas exploration and exploitation of the East Natuna region.

“It’s one step closer to the signing of the production sharing contract,” Husein said.

“I hope we can sign the PSC by the end of October.”

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

No operator has been appointed by the government, but Husein said the appointment is likely on October 28.

Husein said Pertamina hopes to be the operator of the block. Indonesia is boosting gas production amid a failure to boost oil production. The country has become a crude oil net importer since 2004, when oil production slipped below 1 million barrels per day.

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