SINGAPORE�The Malaysian and Indonesian state-owned oil firms struck maiden oil refining and gas sales deals recently, marking closer ties between the neighboring energy producers.
A milestone gas purchase agreement provides for Petronas, Malaysia's state oil company, to purchase 1.5 tcf of natural gas from Indonesia's West Natuna sea field over 20 years from Pertamina.
Petronas said it expected the initial heads of agreement to be followed by a comprehensive gas sales agreement in first quarter 2001 and initial gas deliveries of 250 MMcfd to start in 2002.
Describing the Malaysian agreement as more strategic than substantial, because not much gas was being bought, one industry expert said the amount of gas purchased was not large for Peninsular Malaysia. But geographically, the Malaysian deal is viable, as Petronas must only build a new 40-km pipeline from its Duyong gas fields to connect to Indonesia's West Natuna fields.
Petronas said it saw the linkage as another important step towards the realization of a trans-ASEAN gas pipeline network, which could link 10 countries of the Association of South-East Asian Nations (ASEAN) in the future.
While no pricing details have been given for the gas sales to Malaysia, an Indonesian Mines and Energy official had earlier said that Pertamina was hoping Petronas' purchase price would be around the same as that offered by Singapore.
This implies that the overall cost of the Indonesian gas for Malaysia is likely to be lower because of lower transportation costs, as only 40 km of new pipeline is needed vs. the 640-km pipeline in Singapore's case.
The Malaysia-Indonesian gas deal is also strategic for both in that it offers the possibility of future deals and pipeline connections to untapped and potential large reserves in East Natuna.
The West Natuna-Duyong pipeline link, as part of the proposed Trans-ASEAN Gas Pipeline linking the region, would open up markets to such producers as Malaysia and Indonesia and provide better and cheaper supplies to such countries as Thailand and the Philippines, said one industry consultant.
The agreement also provides for additional gas purchases of up to 1 tcf from Pertamina under the same terms and conditions, Petronas said, without giving pricing details.
Indonesia is the world's largest natural gas exporter with major markets in Japan, South Korea, and Taiwan.
On the gas deal, Petronas said that this would not only enhance the relationship between Petronas and Pertamina, but would also open up more opportunities for cooperation between Malaysia and Indonesia.
Under their refining deal, Petronas said it would process 20,000 b/d of sour crude for Indonesia's Pertamina. The products, which will include gasoline, kerosine, diesel, and fuel oils, are intended for Indonesian domestic use.
Petronas president Hassan Marican and Pertamina president director Baihaki Hakim signed the agreements in Jakarta. Traders said Malaysia was lending its neighbor a hand because it has surplus refining capacity.
The 6-month crude processing deal begins on Nov 1. Petronas has an option to extend it for another 6 months.
The crude will be processed at a Petronas refinery in Malacca, but it was unclear whether it will be at the Malacca I or Malacca II refinery.
Traders said because Malacca I was designed to process Malaysian crude, it was likely to be handled by Malacca II. Petronas also had an option to ship the crude to the refinery.