A multi-partner joint venture to build an LNG plant in Donggi, Central Sulawesi, to produce LNG for export may fall apart as the government announced Thursday that natural gas output initially intended to supply the plant would be used instead to meet domestic demand.
Vice President Jusuf Kalla told reporters Thursday that gas from the Senoro and Matindok fields in the province must be sold to domestic buyers, referring to local industries that rely heavily on gas for production, particularly local fertilizer producers.
"We cannot export gas overseas, while at the same time our industry faces gas shortages. Independence in energy is critical," Kalla said.
Kalla said the decision was final and that it was taken collectively by the government.
"I have reported this to the President and the President has agreed with the decision," Kalla said.
The LNG plant, which it is estimated would cost US$1.6 billion, is supposed to be built by a joint venture between state-owned oil company PT Pertamina with a 29 percent stake, PT Medco E&P with a 20 percent stake and Japan's Mitsubishi Corp. with a 51 percent share.
The plan to build the plant will likely falter as all the companies involved envisage supplying LNG for export, particularly to Japan.
Upstream oil and gas regulator BPMigas said it would fully back up the government decision.
"With regard to the Donggi LNG plant, it's up to Pertamina and Medco to evaluate whether the project is still viable economically or not economically viable," BPMigas's chairman R.Priyono said.
Pertamina's president director Karen Agustiawan said that the highest income the government could make from the two gas fields was $6.4 billion.
Pertamina argued that the Senoro and Matindok fields in Central Sulawesi should be able to supply gas for both the LNG plant and the domestic market ( to local companies).
The company said the scheme would work if at least 250 million standard cubic feet of gas per day (MMSCFD) from the Senoro field and 85 MMSCFD gas from the Matindok field could be sold to the plant at the price of $6.16 per million British Thermal Units (mmbtu).
Meanwhile, it said, as much as 70 MMSCFD gas from Senoro field could be distributed to domestic petrochemical companies at $3.17 per mmbtu.
Medco project director Lukman Mahfoedz said a scheme to supply both export and domestic demand was the best stakeholder scenario.
"We think this proposal is the best, but it's up to the government."
When asked about the government's final decision on the matter, Lukman said the company was fully committed to continuing the project but would first seek a dialogue with the government.
Energy analyst Pri Agung Rakhmanto said the government's decision would undoubtedly cause the plan to falter.
"This means the government will lose a significant amount of revenue potential. For a short term period, this decision is not good," Pri said.
However, he said, in the long run the government would benefit from the perspective of security supply.
"The decision will have a positive impact on the economy, with a wide spread benefit," he said.