G

as distributor Pertamina Gas (Pertagas), a subsidiary of oil and gas giant Pertamina, is looking to develop more facilities to process liquefied natural gas (LNG) in the country, particularly in Java, which has no more large reserves.

Pertagas president director Hendra Jaya said on Thursday that floating storage in East and Central Java would likely be needed in the near future to secure supply to the company'€™s Gresik-Semarang and Cirebon-Semarang pipelines.

'€œWe are still expecting to deliver gas from fields in Java. However, in the future we have to develop regasification facilities to process supply from other areas, since reserves in Java will be depleted by around 2020,'€ Hendra said.

The facilities will be needed to process LNG delivered from other areas and sent through the company'€™s pipeline network, which will connect Gresik in East Java to Semarang in Central Java and finally to Cirebon in West Java. The pipeline, which is divided into two sections, remains in development.

'€œIn Central Java, we have no more gas fields as large as Jambaran-Tiung Biru. For East Java, in the future, we are considering developing floating storage for gas delivery to the Gresik-Semarang pipeline,'€ Hendra added.

Under the current plan, Pertagas'€™ Gresik-Semarang pipeline section will receive allocations from the Kangean East Java field.

Hendra added that gas prices in Indonesia would continue rising, particularly because production would be costlier and more difficult. Indonesia'€™s gas potential is located mostly in the eastern part of the country, where infrastructure is poor. Most of the potential reserves are in deepwater areas.

'€œThe government could formulate a policy to maintain the price, as it is now doing by reducing its take. However, there is also a need to manage the margin taken by gas distributors. We can use international benchmarks to regulate the margin,'€ Hendra said.

He revealed that a number of distributor companies took a large cut from delivering gas, creating high prices for customers.

Under a recent policy to spur economic growth, the government is planning to reduce gas prices for a number of industries, including fertilizer companies and labor-intensive firms. The government decided to reduce the price by lowering the share in income it would have received. As such, contractors working on gas fields will not be affected by the policy.

The Energy and Mineral Resources Ministry'€™s oil and gas director general, IGN Wiratmaja Puja, said the US$1 to $2 drop in the government take in the wake of lower gas prices would entails a Rp 6.6 trillion ($487 million) and Rp 13 trillion loss in state income. However, it will generate tax of around Rp 12.3 trillion per year and a multiplier effect on the economy valued at Rp 68.9 trillion.

'€œIn the next three months, we will work on the revisions of gas sales contracts, so lower gas prices and lower government revenue will be seen next year,'€ Wiratmaja said.

Currently, 1,254 billion British thermal unit (bbtud) of gas are delivered to industry players. Of that total, as many as 98 bbtud of gas are sold at $7 to $8.3 per million British thermal unit (mmbtu) and 322 bbtud at $6 to $7 per mmbtu, which will be the government'€™s focus for reduction.