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nergy company PT Pertamina plans to spend up to US$7.8 billion to develop the major Sumbagut shale gas block in North Sumatra.

Pertamina CEO Galaila Karen Agustiawan said with such a large investment, the Sumbagut block was expected to go from about 40 million standard cubic feet per day (mmscfd) to 100 mmscfd by 2020.

Karen officially signed the production-sharing contract (PSC) for the Sumbagut block at the opening of the of the 37th Indonesian Petroleum Association (IPA) convention in Jakarta on Wednesday.

Watched by President Susilo Bambang Yudhoyono and the Energy and Mineral Resources Minister Jero Wacik, the interim upstream oil and gas watchdog SKKMigas signed the contract on the behalf of the regulator.

 'We hope that the signing of the PSC for the non-conventional oil and gas block will provide good momentum for the future development of alternative energy resources,' Karen told reporters.

Sumbagut block is estimated to possess 18.56 trillion cubic feet (tcf) of shale gas and Pertamina, which will operate the block through its subsidiary PHE MNK Sumbagut, has been given six years for the first exploration phase and four years for second exploration phase.

'Shale gas will diversify out energy sources and curb our dependence on crude oil,' said Karen. Most of the gas from Sumbagut will go to the domestic market.

Shale gas extraction is carried out by injecting water and chemicals into the rocks through a highly controversial technique known as hydraulic fracturing, or more usually, 'fracking'.

Last year, the Energy and Mineral Resources Ministry estimated shale gas resources at around 574 trillion cubic feet (tcf) throughout Sumatra, Kalimantan, Papua and Java.

Sumatra supposedly has the largest shale gas reserves of around 233 tcf, particularly in the central region, where approximately 86.9 tcf of shale gas resources may be found, according to the ministry's geological bureau.

Kalimantan has an estimated reserve of 194 tcf, followed by Papua (90 tcf) and Java (48 tcf), while the remaining 9 tcf spread across other parts of the archipelago.

Earlier this year, the government offered several shale gas blocks to investors, including North Tarakan, Berau, Kutai I and Kutai II blocks in Kalimantan and Rama and Shinta blocks in South Sumatra.

Shale is becoming an important source of natural gas, particularly in the US and Australia, where stories on the shale gas boom dominated news headlines last year.

The shale gas boom in the US is expected to make them one of the world's largest gas exporters, although shale gas exports are currently restricted to serve domestic needs.

Indonesia, currently a net oil importer and the third-largest exporter of conventional liquefied natural gas behind Qatar and Malaysia, is keeping an eye on unconventional gas such as shale gas and coal bed methane.