Finally, the news that people have been waiting for: This week, the Government of Indonesia sent a positive signal to the consortium which consists of Pertamina â€" an Indonesian state-owned oil and gas company as the team leader (owning a 35% participating interest/PI) - Esso Natuna Ltd. (Exxon-Mobil, 35% PI), Total E&P Activities Petrolieres (15% PI), and PTT Exploration and Production (15% PI). Due to the the level of difficulty for exploration and production in the area, the Government of Indonesia agreed to provide several incentives for the consortium to develop East Natuna such as: extending the period of the contract until 50 years â€" 20 years more than the normal maximum contract in Indonesia, share split 45% Government 55 % Contractor, compare to 70:30 for the normal case - and the possibility of having 5 years tax holiday.
The development of East Natuna is definitely a good news for the oil and gas industry in Indonesia that experienced moderate decline in the last couple years. Additional supply from East Natuna will be a new power for Indonesia to fulfill the rising domestic demand while maintaining its position as one of the largest gas exporters in the world, particularly for LNG. Even though East Natuna contains more than 70% CO2 and also high Sulfur, this block has about 46 trillion cubic feet (TCF) of reserves, almost one third of the current total of Indonesia’ reserves.
Furthermore, this news is good not just for Indonesia, but something that neighboring countries grouped under ASEAN are waiting for as well.
Through the ASEAN Council on Petroleum (ASCOPE) â€" the association of ASEAN Nations oil companies â€" ASEAN launched the “Trans-ASEAN Gas Pipeline Infrastructure Projectâ€. This project was based on an evolutionary process of stepwise integration of the “National Gas Pipeline Infrastructure Project†amongst Member Countries. Under the first Trans-ASEAN Gas Pipeline (TAGP) Masterplan, which was issued in 2000, ASEAN emphasized that the future main gas hub for the region would be the gas from Indonesia’s Natuna Field. Under the assumption that the East Natuna development will commence as scheduled with gas production, ASEAN forsees the supply of gas in the region will be provided indigenously â€" no gas import from outside the region â€" at least until 2020.
Getting the Trans-ASEAN Gas Pipeline (TAGP) projects implemented is very important for ASEAN to help ensure greater energy security. The countries with abundant gas reserves could supply the deficit countries in the region at low cost under the spirit of regional cooperation. Since the first pipeline project was installed in 1991, several cross-border pipelines have been constructed and some others are in planning stages. Currently there are 11 cross-border gas pipelines in operation with a total gas pipeline length of 3,019 km. The 12th cross-border gas pipeline, a new 150 km pipeline connection from Myanmar to Thailand, will be in operation in 2013. Although only about 45% (3,169 km) of total TAGP pipeline connections will be in operation by 2015, these pipelines have formed the TAGP backbones in the eastern part of ASEAN. In 2015, it will be possible to transmit gas from Myanmar to Viet Nam or even to Indonesia. It will also be possible for Singapore to export gas from its Liquefied Natural Gas (LNG) terminal to Thailand through the existing gas pipeline connection.
Among the existing 11 cross-border TAGP pipelines, there are two pipelines from Natuna; 660 km to Singapore, and 100 km to Duyong, which commenced in 2001. But both of these come from West Natuna, as East Natuna is still undeveloped.
When ASCOPE updated their plan in 2008 â€" the TAGP Masterplan 2008 updated study â€" there was still not much progress in Natuna. The major pipeline from East Natuna to the ASEAN region has yet to be developed because of pending commercial issues. Efforts are still ongoing to bring the largest hydrocarbon resource to the market.
But, as the demand is growing faster, the case analysis of the updated study pointed to a widening gap between gas supply and demand in the ASEAN region, particularly from around 2017 onwards. As presented in the figure below, even with early commercialisation of the East Natuna field, there is a widening supply gap from 2017 rising to more than 12 billion scf per day by 2025. This shortfall reflects declining gas reserves causing gas supply to plateau and then slowly decline, with gas demand continuing to rise strongly.
But, the facts are that East Natuna is still undeveloped, and there are no new significant gas reserve discoveries since 2000. East Natuna remains the single largest gas resource in the region and its commercialization therefore becomes even more crucial for the region. To fulfill the region’s demand, five new pipelines from East Natuna were proposed, as shown in the following table:
There are still a lot of points that need to be finalized between the Government of Indonesia and the Consortium before East Natuna is commercialised. But, as 2017 is only four years away, more effort should be put on the table. Otherwise, ASEAN has to source their demand from outside the region. As emphasized in the 2008 study, the TAGP Project would only be realized as an important initiative for regional energy co-operation if there were strong commitment from the usual spirit of ASCOPE energy cooperation for the Natuna Field to be harnessed for the project.
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Authored by:
Beni Suryadi
Beni Suryadi is a regional energy analyst and planner who work for ASEAN Centre for Energy, a Southeast Asia intergovernmental organization in energy cooperation, which based in Jakarta â€" Indonesia. He attended several international conferences and training including the first Energy Training Week from International Energy Agency, in Paris, 4-8 April 2011. Collaborated with statisticians ...
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