East Kalimantan-Java gas line given Indonesian approval

Indonesia has approved plans by privately owned PT Bakrie & Bros. to continue work on its proposed $1.26 billion natural gas pipeline linking East Kalimantan and Central Java.

Jun 12th, 2007

Eric Watkins
Senior Correspondent

LOS ANGELES, June 12 -- Indonesia has approved plans by privately owned PT Bakrie & Bros. to continue work on its proposed $1.26 billion natural gas pipeline linking East Kalimantan and Central Java.

The project can proceed according to the original schedule as there are no longer doubts over the supply of gas for the country's longest pipeline project, said Tubagas Haryono, chairman of BPH Migas, the country's downstream oil and gas regulatory agency.

"The project is still going ahead and there are no plans to terminate the contract," Tubagas said, adding that the Bakrie project would have sufficient supplies since most of the current LNG export contracts from the East Kalimantan gas fields will be finished by 2011, when the project is due to come on stream.

According to the government's recently released gas balance figures, the East Kalimantan region will have a gas surplus of 1.629 bcfd by 2011 as demand is expected to drop to 1.413 bcfd while the supply will stand at 3.042 bcfd.

Up until 2009, most of the gas produced in the province will be used to supply LNG exports to Japan and South Korea.

Apart from gas supplies, the Bakrie project also has considerable outside financing, much of it from Japan. A number of international institutions, including Mitsui, Mizuho, and Deutsche Bank, have committed to providing loans worth about $1.26 billion to finance the project, according to a report in the Kontan business daily. It said Bakrie alone will provide about $400 million to finance pipe procurement and construction works.

The statement by Tubagas resolves earlier uncertainty over the project. In April, Indonesia, reiterating an earlier warning, said it would revoke the special right granted to Bakrie to build the 1,200-km gas line from East Kalimantan to Central Java unless the company started construction in July (OGJ Online, Apr. 30, 2007).

At the time, Yuanita Rohali, Bakrie finance director, said the company was awaiting publication of a government report on the country's gas balance, and the company had decided not to go ahead with the venture without a guaranteed supply of gas. Many industry officials earlier had cast doubts about the feasibility of the project due to declining gas reserves in East Kalimantan.

Contact Eric Watkins at hippalus@yahoo.com.

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