INDONESIA - Pagerungan - BP.

BP supplies Java with gas it produces from Pagerungan island field and satellites, which Arco found in 1985 in the Kangean PSC block north-east of Bali island. Gas production began in March 1993 and reached a plateau of 600 MCF/d in the late 1990s. The gas is supplied by a 430-km marine/land pipeline to East Java's power system of the state utility PLN and a local gas distribution unit of the state's PGN.

BP's contract to 2010, signed by Arco in 1980, gives it the right to supply the first 600 MCF/d of gas to the East Java market. But its output in recent months has been limited to 180 MCF/d. The issue is under the spotlight following a recent pipeline leak which caused BP's production to fall to 100 MCF/d. Output from five wells was shut-in late last year while the line was repaired.

Energy Minister Purnomo said in early 2003: "There will be a review because the contract seems monopolistic and gives privileges to the operator". BP says it will be willing to renegotiate, given that it cannot currently deliver anything close to 600 MCF/d. But it wants a 20-year extension of its Kangean PSC, which expires in 2010, so that it can bring on stream the Terang/Sirasun gas fields on its Muriah PSC block - off East Java in water depths of 60 to 180 metres. These fields have 1 TCF of recoverable gas. Their development to produce over 400 MCF/d would help alleviate the gas shortage in Java. However, BP is not willing to go ahead with the $400m project as a big part of the reserves would not be produced before 2010. Agreeing to change the terms of the Java gas sales contract could help BP secure the Kangean PSC extension, while Pertamina is strongly opposed to this. BP completed the pipeline repairs at least one week faster than had been expected in late 2002, which was welcome news for its customers. Kangean's existing reserves will help BP to remain the sole gas supplier to East Java until 2005. In addition to Terang and Sirasun, there other prospects that could be explored on Kangean by BP.

BP is considering a $300m-plus project to have Indonesia's first-ever LNG regasification terminal built on a barge off West Java by 2007 to help avert a severe energy crisis in Java. It would be supplied with 500 MCF/d of LNG delivered by tanker, mainly from the BP-operated Papua gas fields in the Tangguh gas development/LNG JV (see Gas Market Trends 11). The gas would then be transported by pipeline to customers on Java. BP and PLN are studying this under a MoU signed in 2002.

BP is looking for farm-in partners for four of its offshore PSC blocks. Three are gas-prone tracts in Papua: Bomberai, East Arguni and West Arguni with the latter also said to contain oil. BP has 80% in each of them. The fourth, Bawean-1 in which BP holds 100%, is off Java. Santos, which has made a major discovery off Java and had bid for but failed to get Bawean-1 in Migas' 2001 offering, is said to be a serious candidate for this.