Indonesia needs to promote use of gas to reduce oil dependence

Against a backdrop of rising domestic fuel prices, one feasible option for Indonesia to wean itself off its dependence on oil, and thereby reduce fuel subsidy spending, would be to promote the use of natural gas, experts say. Energy sector observer Kurtubi said that the nation's dependence on oil had reached a worrying level with the country having to import some 30 % of its oil requirements per year to meet domestic demand.
"The government has to realize that such a policy is costly. It is high time for the next government to start seriously thinking about promoting the use of non-oil products, notably gas, which we have in abundance," Kurtubi told.

Data from the Ministry of Energy and Mineral Resources shows that as of the end of 2003 the country's gas reserves (proven and potential) stood at 198.13 tcf, but these are still largely untapped due to the limited support infrastructure, including distribution and transmission lines.
In 2003, the nation's total gas output by state oil and gas company Pertamina and production sharing contractors reached a mere 3.3 tcf, some 90 % of which was exported. Extensive development of infrastructure is necessary in order to boost the use of gas domestically in view of the fact that the users and potential users of the commodity are concentrated on Java, while most gas is currently produced outside the island.

Kurtubi's remarks came amid a debate over whether or not the government needs to start raising selected fuel prices to reduce fuel subsidy spending and ease the pressure on the state budget. Under the newly-approved revised 2004 state budget, fuel subsidy spending has been earmarked at a whooping Rp 59.2 tn -- which represents a more than 300 % increase from the initial target of Rp 14.4 tn.
Kardaya Warnika, deputy chairman of the oil and gas regulatory body, BP Migas, said that an increase in gas demand would come as soon as the government began cutting spending on fuel subsidies. The gradual slashing of fuel subsidies would then push the price of oil-based fuels up, forcing users -- both industrial household -- to seek alternative energy, such as gas, Kardaya said.

However, Kardaya admitted that it would take about three to five years to build and improve the infrastructure to make optimise gas distribution. But, he was of the opinion that by rising fuel prices, which would eventually help boost demand for gas, would in turn draw enough interest from investors, both domestic and foreign, to start investing to expand the current gas pipeline infrastructure.
"So, yes, it may take some time, but it is not too far away either if we start now," Kurtubi said.

Currently, state-owned PT Perusahaan Gas Negara, which controls gas distribution in the country, only serves six cities -- Medan, Palembang, Jakarta, Bogor, Cirebon and Surabaya. The firm plans to boost gas supplies to Surabaya, the country's second largest city, from various fields offshore East Java. It will find no difficulty in delivering the gas from these fields as there is already a transmission pipeline linking Madura island to the city.
PGN also plans to start supplying gas to Banten and West Java, the main industrial regions of the country. Given the lack of gas output in these regions, PGN plans to build a transmission pipeline linking them to gas-rich South Sumatra. Once the South Sumatra-West Java transmission pipeline is completed in 2006, many industrial undertakings are expected to switch from oil to gas.

Another potential gas supplier for Java is the Cepu block, located in the border area between Central and East Java. American firm ExxonMobil has reportedly found huge gas reserves in the area.
However, ExxonMobil has postponed developing the fields as the government has yet to approve its request for a contract extension.