Indonesia tries to dispel LNG buyers' concerns after contracted supply cuts

Nov. 12, 2003
The Indonesian government, reversing earlier optimistic statements, is seeking to allay concerns of Japanese and South Korean LNG buyers after announcing a decrease in contracted supplies for December from ExxonMobil Corp.'s Arun natural gas facilities in the worn-torn province of Aceh.

Eric Watkins
Middle East Correspondent

NICOSIA, Nov 12 -- The Indonesian government, reversing earlier optimistic statements, is seeking to allay concerns of Japanese and South Korean LNG buyers after announcing a decrease in contracted supplies for December from ExxonMobil Corp.'s Arun natural gas facilities in the worn-torn province of Aceh.

Indonesian government sources attribute the break in supply to depletion of reserves at the Arun gas fields. But other reports suggest that the cause is more likely ongoing security concerns, along with damage to facilities from earlier attacks by separatist guerrillas.

"We will honor our LNG contracts with foreign buyers. That is an important thing. But we have to supply domestic fertilizer factories in Aceh with natural gas as well," Kardaya Warnika, vice-chairman of industry watchdog BP Migas told reporters Tuesday.

Kardaya said BP Migas would ensure that extra supplies of LNG are shipped to Japanese and South Korean buyers in January to make up for the lower supplies in December. The Indonesian government will source the extra gas from the Bontang LNG plants in East Kalimantan, Kardaya said.

Kardaya neither specified how much LNG Indonesia would actually offer in December to the LNG buyers who bought gas from the Aceh fields under long-term contracts, nor did explain why the buyers could not have extra supplies from Bontang in December.

Further explanations
Kardaya said the LNG export reduction was needed to meet demand from two state-owned fertilizer companies in Aceh: ASEAN Aceh Fertilizer (AAF) and Pupuk Iskandar Muda (PIM).

Both firms are running at low capacity due to shortages of gas from ExxonMobil Oil Indonesia (EMOI), Aceh's only gas producer. Both factories have complained for weeks about gas shortages that have left at least 1,700 employees without work—a dangerous situation in an already volatile region.

Indonesia energy officials attribute the reduced supply to steady depletion of EMOI's gas reserves over the past few years. That depletion is said to have reduced LNG production in Arun LNG plant, with only four of six LNG trains now operating. BP Migas has reportedly said that EMOI can supply only 1.36 bcfd in 2003 and that the supply will continue to drop to 800 MMcfd in 2007.

But gas shortages at the Aceh fertilizer factories actually began with the outbreak of fire at ExxonMobil's Arun plant on Aug. 27, which halted operations at gas field Cluster III-IV. Operations at the field resumed the following day, but on Sep. 1, officials said production was just 60% of full capacity.

Both the Indonesian government and ExxonMobil said they were investigating the cause of that fire, which followed an Aug 21 grenade attack on the Arun facilities. The earlier attack, attributed to separatist rebels, caused no injuries or damage but was the second reported since Indonesia's military launched a fresh offensive against rebels from the Free Aceh Movement (GAM) in May.

Ten days before, on Aug. 11, a bomb exploded in a condensate burner unit at ExxonMobil's Cluster II. "The bomb went off in the waste disposal area and no one was killed in the incident. A low explosive was used," an Indonesian military spokesman said. After the blast, Indonesian military units launched a sweep of the area and found a 4 kg bomb along with 50 m of connecting cable.

Government officials could not say how much time would be needed to restore Arun's output to full capacity following the Aug. 27 fire, but they said there would be no adverse effect on deliveries abroad. On Sep. 8, Muchsin Bahar, the downstream director of Indonesia's state oil company Pertamina, told reporters the complex would achieve its production target of 115 cargoes in 2003. "We have produced 75 cargoes and we will produce the remaining 40 cargoes according to the plan," Bahar said.

But one industry source took exception to that view, saying that LNG shipments from Arun might be lower for the rest of the year due to the fire. "The production may be less by between two to three cargoes," the source said. "Pertamina has to make a strong effort to deal with that output cut possibility."

Other plant woes
Meanwhile, the Arun facility has been burdened by additional security worries. On Sep. 8, local villagers discovered two 50 kg bombs at Kedai Krung in Kuta Makmur. A military spokesman said the bombs were planted by GAM with the intention of disrupting public order because "they were located near the ExxonMobil pipeline."

Indonesia says more than 900 guerrillas and 67 police or soldiers have been killed since the government imposed martial law in Aceh and launched a huge offensive May 19 to wipe out GAM. It says more than 1,800 rebels have been arrested or have surrendered but top rebel leaders are still at large.

The Indonesian government last week extended the military emergency for 6 months despite protests from right groups and concern expressed by the US, the European Union, and Japan (OGJ Online, Nov. 11, 2003).