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tate owned oil and gas producer PT Pertamina is in the process of establishing a joint venture with PT Arrty Mega Energie to develop a dimethyl ether (DME) production plant to supply household domestic gas needs for cooking.

Pertamina's trading and marketing director Achmad Faisal told reporters on Wednesday that the project to build the plant would cost up to US$1.9 billion.

"We expect that the plant will begin production in 2012 at the latest, because the demand for LPG will increase significantly by that time," Achmad said in the company's DME market trial launching in Jakarta.

DME is a gas which can be derived from coal by first producing ethanol. It can be liquefied just like LPG from natural gas. As a household fuel DME can be used 100 percent stand-alone or can be blended with natural gas in LPG.

For a market trial, Pertamina will fill gas canisters with a mix of 20 percent DME and 80 percent LPG from natural gas and then distribute the LPG canisters to 300 households and 150 home industries in North Jakarta .

Many houses in Western Europe were previously supplied with coal gas made by earlier simpler technologies for use in town distribution systems during the coal age, and later switched to natural gas which could use the same infrastructure.

Faisal said the DME market trial would be carried out for the next three months and Pertamina would evaluate the market response and take the results into consideration in planning and building the DME plant.

Christoforus Richard, president director of PT Arrtu Mega Energie, one of Pertamina's potential partners for the project, said that of the total investment needed to develop the plant Pertamina would have a 20 percent participating interest in the project, while the remaining 80 percent will be mobilized by PT Arrtu Mega Energie and other possible partners.

Christoforus said that the plant would have two units. The first one is the plant to produce ethanol from coal. This unit would be located in Peranap, Riau Province. The second unit, to be located in Eretan, Cirebon , West Java , would be to set up to process the ethanol from the first unit and transform it into DME.

However if necessary the second processing plant could temporarily start production from ethanol from Pertamina before the first plant comes on stream, or it could obtain ethanol from other sources.

"The plant is expected to produce 1.7 million tons of DME a year," Christoforus said.

He said the joint venture expected to begin the construction in September this year and expected to finish the project within two years.

The plant will produce the DME from low grade coal. "The plant will need between six and seven million tons of coal *per year*. We have signed an agreement to receive coal from PT Bukit Asam," Christoforus said.

Faisal said the DME had high potential to be a household fuel here since Indonesia has big deposits of low grade coal. He said that, in the long term, the DME even had potential to supply vehicle fuel.

Short term, Pertamina is developing the DME to add to LPG from natural gas as household fuel.

"If households would use DME, we could sell the LPG from natural gas to other markets and get a better price," Faisal said.

LPG demand increased significantly after the government launched the kerosene-to-LPG conversion program in 2007. This year, Pertamina estimates the domestic demand of LPG will be about 3.07 million tones. The figures is expected to continue to increase in the following years.