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Until 1997, Indonesia's exports of LNG continued to rise in volume, but in 1998, the exports declined bpth in volume and value. In the first 5 months of 1998, LNG exports totaled only 10,694 tons, down 6.5% year on year and the export value fell by 33.6% to US$ 1.44 billion year-on-year.

The decline was attributable to the regional woes, which have affected a number of other Asian countries mainly Japan and South Korea both major buyers of LNG from Indonesia. At the same time oil market is glutted by large supply. The fall in the price of oil caused a decline in the LNG price. The decline in the price of LNG began in 1997.

Indonesia has succeeded only in finding LNG buyers in Japan, Korea and Taiwan while competitors come from Malaysia, Brunei Darussalam, United Arab Emirates and the United States. But Indonesia still dominates 50% of the market in the three countries. Its is expected that Singapore will become a major buyer of natural gas from Indonesia starting 2001 after the West Natuna gas field has been operational. Singapore plans to buy natural gas without being first liquefied from West Natuna.

LNG production

Data at the Oil and Gas Directorate General show that the country has a reserve of 216.8 trillion cu.ft (TCF) of natural gas. Proven reserves make up 63.35 TCF. Only part of the reserves have been developed because of limited fund. Exploration of the reserves will need large fund.

Last year the country's gas production did not increase partly because of a decline in the domestic consumption of gas as a result of the crisis. But in the past five years the production has risen by 4.5% annually on the average - from 2.66 billion MSCF in 1993 to 3.17 billion MSCF in 1997. Data at the oil and gas directorate general show that in the first 6 months of 1998, the country's natural gas production totaled 1.43 billion MSCF.

Consumption is small in comparison with production of gas in the country. In 1997, gas sales in the country totaled 563.8 million MSCF or only 17.8% of the country's total production. Gas is used mainly as a fertilizer feedstock in the country and as fuel for power generating plants. Other uses are as fuel for steel plants, cement factories, paper factories and plywood factories. In petrochemical industry, natural gas is used as a basic material.

The excess in production is processed into LNG for export. The change in the form is necessary to facilitate transport. But exports to Singapore later will be made through pipelines from Natuna.

The country now has two LNG plants - in Bontang, East Kalimantan under PT Badak LNG (7 trains) and in Arun, Aceh, under PT Arun LNG (6 trains). The two are subsidiaries of Pertamina. The country's total production of LNG was 27.14 million tons in 1997, up 3.3% from 1996. In the first semester of 1998, the production was 12.9 million tons.

Development of new gas fields

The natuna gas field, the world's largest gas reserve known, will keep Indonesia's place among the top LNG producers in the world. In October, Pertamina is to sign a MOU on gas sales to Sembawang Corp. Singapore. The Singaporean company will have a a supply of 325 MCF (million cu. feet) of natural gas from West Natuna annually for 23 years.

Philip Yeo, an executive of the Singaporen Economic Development Council, said after a meeting with President B.J. Habibie, the council planned to open an international tender in November for the development of 450 mile long pipeline from Natuna to Singapore. The project is estimated to cost USS 500 million. It is expected to be completed in 2000 and would be operational in 2001. So far 8 consortiums have indicated interest in taking part in the tender.

Premier Oil Natuna Sea Ltd Siak, Pertamina's partner in the development of West Natuna gas reserve has been reported to allocate additional fund of USS 300 million for the project. With the additional fund the project has used a total investment of US$ 600 million. Based on an estimate by Premier Oil, with sales totaling 325 MCF a year the venture will reach a break event point in 3.5 years. Data at the oil and gas directorate general, gas reserves in several areas in Natuna could turn out 14 million tons of LNG annually for 50 years.

A new natural gas field has also been reported ready for development in Irian Jaya. The gas field found by Arco has a proven reserve of 14.4 TFC out of a potential reserve of 21.3 TFC. The Irian Jaya gas has a lower content of sulphur and CO2 compared with Natuna gas. An ARCO executive told President Habibie that the Tangguh LNG project is estimated to cost US$ 4 billion including for infrastructure development.

The gas field will strengthen Indonesia's position as the largest supplier of LNG in the world. It will also enable Indonesia to provide a substitute for diesel oil, which has to be imported as large as 70,000 barrels a day to generate electricity.

ARCO, which recently acquired Union Texas Petroleum at US$ 3.3 billion, was optimistic about the Tangguh LNG project as the reserves are large and the quality is better than Natuna gas. In addition, the site is strategic with good access in transport to potential market in the Asia Pacific region.
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Comment:Indonesia: Exports of LND totaled 10,694 tons valued at $1.44 bil in the first five months of 1998
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Sep 14, 1998

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