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lowing economic growth has pushed down gas demand and made consumers hold back on their commitment to absorb the energy source, which is in turn threatening the future of gas processing and distribution facilities in the country.

During the first semester of the year, a floating storage and regasification unit (FSRU) in Lampung, which is operated by state-run gas firm PGN, did not receive any gas supplies due to zero demand from its buyers. The FSRU should have received liquefied natural gas (LNG) cargoes sent from the Tangguh plant in West Papua, regasified them and then delivered the gas to customers, including state-owned electricity firm PLN and a number of industries in Lampung and West Java.

'€œUnder the plan, we are prioritizing the electricity sector to absorb gas processed by the Lampung FSRU. However, the economic situation has changed and the demand isn'€™t there yet. For now, the facility has yet to distribute gas,'€ PGN director Wahid Sutopo said.

The Lampung FSRU started operation last year. The development of the FSRU was part of an attempt to boost gas facilities in the country so that more gas could be absorbed by domestic players.

Indonesia is known for holding significant gas resources. While most of the gas is sent abroad as LNG, the government has been calling on industry players to switch to gas utilization so that the country will be able to reduce its dependency on oil-based fuel.

The FSRU development was initially planned for the Belawan area of North Sumatra, where demand was expected to be high, since the area was facing an electricity crisis and was in dire need of energy sources to feed new power plants. However, the development was then moved to Lampung because the government wanted to overhaul the Arun LNG plant in Aceh to become a regasification terminal.

'€œThis is typical of infrastructure development, in which utilization is low in the early stages. We have experienced this when we started operating the SSWJ pipe [undersea South Sumatra-West Java pipeline] in 2007. By the time demand is back and growing, we already have the facility,'€ Wahid said, brushing aside concerns about the burden his company may have to bear for the idle Lampung FSRU.

Last year, the Lampung FSRU received LNG sent from Tangguh that was later distributed to PLN. For this year, under the government'€™s allocation plan, the facility will receive 14 cargoes from the Tangguh plant. PGN has previously committed to taking five of them after securing commitments from its buyers. However, none of them are under contract, leaving the cargoes with uncommitted status and creating a bigger burden for the authority to sell them at the spot market.

Selling at the spot market, where prices are very volatile, is the most feasible option rather than curtailing production in Tangguh. A disruption in production has a higher risk of damaging the gas wells.

PGN and PLN are currently working to settle the issue of gas supply and absorption at the Lampung FSRU.

'€œWe are working on several scenarios with combinations of various assumptions. Some scenarios show that there will be absorption [by PLN],'€ PLN fuel and gas division head Chairani Rachmatullah said.

Apart from five Tangguh cargoes for the Lampung FSRU, there are also 15 other cargoes from the Tangguh and Bontang plants for the West Java FSRU operated by Nusantara Regas and for the Arun regasification facility that are have unclear status, according to figures from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).

'€œPLN said it would drop two cargoes that should be delivered to Nusantara Regas from the Bontang plant. It cited low electricity demand in Java as the reason for dropping the cargoes,'€ SKKMigas spokesperson Elan Biantoro said.

The Energy and Mineral Resources Ministry'€™s director for upstream industry, Djoko Siswanto, said the government was trying to settle the low absorption issue.

'€œPLN currently implements a policy of using cheaper energy sources. Given the low oil price, it is now cheaper for the company to use oil or coal. We are working on the issue because we don'€™t want the LNG facilities to stop working and we don'€™t want PLN to continue being highly dependent on diesel fuel,'€ Djoko said.