Indonesia Gas War Part II

The decision of Downstream Oil and Gas Regulatory Body (BPH Migas) to appoint Bakrie Brothers as the operator of 1,200 km long gas pipeline linking East Kalimantan and Java has sparked Gas War II in the country.


Upstream Oil and Gas Regulatory Body (BP Migas) Chairman Kardaya Warnika responded immediately the decision with his same-old statement that the gas reserves in East Kalimantan will not enough to support the pipeline.
We have two alliances at odds. First, BP Migas with gas producers in East Kalimantan such as Chevron (previously Unocal), Total Fina, and Arco/BP, PT LNG Badak (a joint venture of some companies) plus POG which plans to build new LNG plant in Bontang, and LNG customers in Japan, South Korea, & Taiwan (plus may be later on China). On top of this, several major gas customers in East Kalimantan such as PT Pupuk Kaltim (ammonia and urea producer), PT Kaltim Methanol Industry (methanol), PT Kaltim Pasifik Amoniak (ammonia), and PT Kaltim Parna Industry (ammonia).
Second, BPH Migas with domestic customers in Java and local pipe manufacturers which will take benefit out of the pipeline project.
The first group might say, sorry we have no more gas for you (Bakrie pipeline) because we have long-term contracts in hands at US$9/MMBTU. We could consider not to renew the contracts when they matured, but you have to pay the same export price. No way we will sell at US$3/MMBTU. Transporting gas to Java may help gas supply for power plants and manufacturing industries in Java, but at US$3/MMBTU, the country lost the foreign exhange earning of US$6/MMBTU. Without gas supply, no way that Bakrie could build the pipeline. Japanese LNG buyers are reportedly furious about the pipeline plan.
The second group, on the other end, 'may' push government to implement what we understand as Domestic Gas Obligation (DMO) wherein gas producers have the obligation to sell their output to domestic market first. But at what price, that's the question. This group argues gas pipeline would create more multiplier effects than exporting LNG.
What are the multiplier effects? Boost the pipe manufacturing industry, for sure, including Bakrie's pipe business. Power generation may be next in line because out of 10,000 MW new power plants to be built in the next five years, most will be coal-fired, not gas-fired. So this argument might be considered weak. Besides, if the country really want to develop multiplier effect of natural gas, why not build more gas-based chemical plants in East Kalimantan along with the power plants?
East Kalimantan already the largest ammonia producer in the world with more than 4 million tones per year capacity (through Pupuk Kaltim, KPA & KPI); the largest methanol (through KMI & Methanol Bunyu) with 1 million tones/year; and the largest urea producer in one site (3 million tones/year). We could build more of such plants, not to mention the mid-stream chemicals like acrylonitrile, caprolactam, nitric acid or ammonium nitrate (raw material for explossives, increasingly important with the growing mining industry in Indonesia/the world), all of which uses natural gas as feedstock.
The strategy to build more manufacturing facilities outside Java would deconcentrate both people and energy consumption in Java, right? And it's politically correct in the decentralization strategy.
The war is on and the winner might be decided by politics & power play instead of economic reasons.

READ MORE!!!