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PGN awards pipeline construction to KHI Pipe Industries

Publicly listed PT Perusahaan Gas Negara (PGN) and PT KHI Pipe Industries have signed an agreement for the procurement of pipelines connecting the planned floating liquefied natural gas (LNG) terminal in Belawan, North Sumatra with its customers in Medan

Rangga D. Fadillah (The Jakarta Post)
Jakarta
Wed, March 7, 2012

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PGN awards pipeline construction to KHI Pipe Industries

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ublicly listed PT Perusahaan Gas Negara (PGN) and PT KHI Pipe Industries have signed an agreement for the procurement of pipelines connecting the planned floating liquefied natural gas (LNG) terminal in Belawan, North Sumatra with its customers in Medan.

“This signing is a manifestation of our commitment to accelerate the fulfillment of domestic gas needs, predominantly in Medan and surrounding areas,” PGN corporate secretary Heri Yusup said in a press statement sent to The Jakarta Post on Tuesday.

Under the agreement, KHI, which is a subsidiary of state-owned steel maker PT Krakatau Steel, will provide 11-kilometer and 22-kilometer pipelines that comply with international standards to ensure operational safety. The pipelines will connect the terminal with PGN’s onshore distribution station.

For the gas absorption, PGN have started disseminating information to potential industrial and commercial customers. The company expects that the gas from the terminal, also known as a floating storage and regasification unit (FSRU), can rejuvenate economic activities in industrial areas both in Medan and nearby cities.

“With the progress we have made so far we hope we will gain support from all stakeholders, particularly from the government, so that we can obtain sufficient gas supplies for the FSRU,” Heri said.

“We also hope that the North Sumatra regional administration will support the project by facilitating and accelerating the issuing of permits for potential customers and industries,” he added.

The acceleration of energy infrastructure development, both in the upstream and downstream sectors, would help industries improve their competitiveness, which in turn would create more job opportunities for locals, Heri argued.

The contract for the FSRU has been awarded to the Norway-based LNG transportation and services company, Hoegh. The terminal, which will have a total capacity of 140 million standard cubic feet per day (mmscfd), is estimated to require US$200 million in investment and is expected to begin commercial operations in 2013.

However, the project has been in limbo since state-run oil and gas firm PT Pertamina revealed its plan to convert the Arun LNG plant in Aceh into a LNG-receiving terminal. The planned terminal will supply gas to fertilizer, paper and other industries in Aceh as well as in North Sumatra.

Pertamina claimed that converting the LNG plant was much cheaper than building a FSRU, as it only required $80 million in investment. It is predicted that the terminal will have a total capacity of 320 mmscfd and will begin commercial operations in June 2013.

KHI also plans to install a 350-kilometer pipeline from the Belawan terminal to industries in Medan and the Belawan gas-fired power plant.

Regarding the operation of the Arun LNG terminal, Pertamina claimed the government would receive additional revenues of up to $13.55 million per year.

As of today, only the Belawan FSRU project has obtained formal approval from the government via a presidential regulation, while Pertamina’s Arun conversion project has not yet been officially endorsed.

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