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T Pertamina, through its subsidiary PT Perta Arun Gas, began construction work on Saturday of a liquefied natural gas (LNG) storage and regasification terminal in Arun, Aceh, which is expected to be complete in 2014.

Once the project is completed, the facilities will supply gas to Aceh and North Sumatra and boost the economies of both provinces.

The Arun LNG Storage & Regasification Terminal project is designed to have a total capacity of 400 million standard cubic feet per day (mmscfd) or equal to 3 million tons a year. In its initial stage, the facility will supply 120 mmscfd of gas to state-owned electricity company PT PLN.

Pertamina director for gas Hari Karyuliarto said the project would be run by Perta Arun Gas, a company 70 percent owned by Pertamina (through PT Pertamina Gas) and 30 percent by a company belonging to the Aceh administration.

'€œAs a state company, Pertamina is committed to maintaining the multiplier effect of PT Arun NGL [Natural Gas Liquefaction] to help economic development in Aceh, particularly Lhokseumawe. That'€™s why we'€™ve decided to develop this regasification facility,'€ Hari said during the groundbreaking ceremony of the terminal.

The economic future of Lhokseumawe has been uncertain as Arun NGL, which has been the driver of economic activities in the area, will see its contract expire next year.

Arun NGL is a joint company, which is 55 percent owned by Pertamina, 30 percent by US-based ExxonMobil and the remaining 15 percent by a consortium of buyers known as JILCO (Japan-Indonesia LNG Company).

Arun NGL currently runs a LNG plant, which used to be the largest LNG processing facility in the world, and was established in 1973 following the discovery of one of the world'€™s largest gas reservoirs in 1971 by Mobil Oil Indonesia Inc. working under a production-sharing contract with Pertamina.

'€œIf the contract ends, Arun NGL will likely be liquidated. Therefore, the establishment of Perta Arun Gas is a breakthrough as there has been no agreement achieved yet with Exxon [about Arun NGL]. It is also possible that Arun NGL will be merged into Perta Arun Gas some day,'€ Hari said.

According to Hari, Arun NGL currently has assets worth almost Rp 7 trillion (US$615 million), including the LNG plant and supporting facilities. Those assets would likely be abandoned if Arun NGL ceased operations following the expiration of its contract next year.

The assets fall under the supervision of the Finance Ministry'€™s directorate general for state wealth.

'€œWhen the contract ends, there must be certainty about who will manage the assets. It'€™s okay that the assets remain under the state wealth directorate general,'€ Hari said.

He added that Pertamina had talks with ExxonMobil to decide the future for Arun NGL after the contract ends.

However, talks remain deadlocked as both parties have different interests. Pertamina has proposed asset revitalization by moving into LNG storage and regasification while ExxonMobil prefers to maintain condensate and sulfur processing after the contract ends.

Condensate and sulfur processing is expected to continue until 2018 although in insufficient amounts to be processed into LNG.

The LNG storage and regasification terminal, which is the first conversion project of an LNG plant into regasification in the world, requires an investment of $80 million. The LNG to be converted unto gas is expected to be supplied from the Bontang block in Kalimantan or from the Tangguh block.

Along with the regasification project, Pertamina is also working on the 340-kilometer Arun-Belawan gas transmission pipeline. Pertamina aims to complete about 50% of the project by December.