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tate electricity company PT PLN and state oil and gas firm PT Pertamina signed on Thursday a heads of agreement (HoA) on liquefied natural gas (LNG) supply for PLN’s power plants in eastern Indonesia.

The agreement marked PLN’s readiness to purchase LNG from Pertamina and also the latter’s readiness to supply gas to PLN, the electricity firm’s primary energy director, Nur Pamudji, told reporters.

“The LNG will be delivered to 11 locations in eastern Indonesia. The total volume will be 930,000 tons a year for 10 years,” he said.

A joint venture will be established to manage LNG transportation and necessary infrastructure.

The joint venture company will be operated by Pertamina’s subsidiary PT Pertamina Gas (Pertagas) and PT Indonesia Power, subsidiary of PLN.

The 11 locations are Bontang, Samarinda (Tanjung Batu and Samberah), Batakan and Balikpapan in East Kalimantan, Pesanggaran in Bali, Tello and Jeneponto in South Sulawesi, Pomala in Southeast Sulawesi, Minahasa in North Sulawesi and Halmahera in North Maluku.

Pertamina senior vice president for gas Nanang Untung said around US$450 million was required to build the necessary infrastructure for gas transportation and re-gasification.

He added that the first gas delivery might be in the fourth quarter of 2012 from the Bontang LNG field to gas-fired power plants in Bontang and Samarinda.

“For Bali and other areas, we may begin delivery in 2013 because we need to rent LNG vessels and install other infrastructure [re-gasification terminal and storage facilities].”

In addition to the Bontang LNG plant, he said gas might come from the Sengkang gas block in South Sulawesi, Donggi-Senoro LNG plant in Central Sulawesi and the Salawati block in Papua.

The use of gas will allow PLN to cut its consumption of oil-based fuels.

Suryadi Mardjoeki, PLN’s division head for gas and oil-based fuels, said that eastern Indonesian needed around 700 million standard cubic feet (mmscf) or equivalent to 13,540 tons of LNG and 700,000 million British thermal units (mmbtu) per day.

“If we use oil, we spend $15 per mmbtu but if we use gas, the cost is only $12 per mmbtu,” he said.

With that calculation, PLN can save up to $2.1 million per day if we convert from oil to natural gas.