Pertamina & PLN sign major LNG agreement for supply to the Indonesian power market

State energy company Pertamina and state electricity company Perusahaan Listrik Negara signed a major gas sale agreement on Monday, in a plan to help boost development of local economies and help diversify supply for the Indonesian power market.

Pertamina will regasify liquefied natural gas at the Arun plant in Aceh, and PLN will supply 1 million metric tons of liquefied natural gas a year, or 105 million standard cubic feet a day (mmscfd), to the Arun plant from the Tangguh plant in West Papua, Pertamina said in a statement.

The LNG cargo will be shipped to Pertamina’s Arun facilities and after processing will then be transported using Pertamina’s pipeline to power industries and the Belawan power plants in North Sumatra.

PLN signed a gas purchase agreement with Badak NGL, the consortium behind the Tangguh plant, in December.

Pertamina is currently in the process of converting its Arun facilities from a LNG production unit into a regasification terminal. It plans to spend $74 million for this conversion, which will be completed in 2014.

The company also will invest up to $400 million to build a pipeline network connecting Arun with Belawan, according to Gunung Sardjono Hadi, the president director of Pertamina unit Pertagas.

Pertagas handles the pipeline component of the project, while Rekayasa Industri, another Pertamina subsidiary, is responsible for the Arun regasification.

The pipeline will go on stream in 2015 and will have the capacity to transport 200 mmscfd, Gunung said on Monday on the sidelines of the Indogas conference and exhibition in Jakarta, during which the deal was signed.

Karen Agustiawan, Pertamina’s president director, said the project will create a multiplier effect in the development of local economies as well as increase the utilization of natural gas for domestic energy consumption.

“This agreement [represents] one strategic move toward the betterment of Indonesia’s gas infrastructure, and subsequently the Indonesian power market,” she said.

Over the next five years, Karen added, Pertamina will spend significant amounts on gas infrastructure projects across the country.

Meanwhile, Medco Energi Internasional, the country’s largest listed oil and gas firm, during the Indogas event signed three gas agreements, two of which were amendments to previous deals.

Pertamina Medco Tomori Sulawesi, another energy consortium, signed an agreement with Panca Amara Utama to supply 55 mmscfd of natural gas to its future ammonia plant in Central Sulawesi. The natural gas will be sourced from the Senoro-Toili block in the province.

Pertamina Hulu Energi, Medco and Tomori E&P Limited own 50 percent, 30 percent and 20 percent of the consortium, respectively.

The agreement, which will go into effect in 2015 and will span 12 years, is estimated to generate some $820 million in revenue for the consortium.

Medco has also successfully amended its gas sales agreements with state-controlled gas distributor Perusahaan Gas Negara and the Sintesa Groups’ Meppogen.

The deals, which oblige Medco to supply more gas for a better price, are estimated to generate an additional $21 million in revenue for Medco.