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  Business Times 09 Oct 07
Island Power still hoping for quick gas pipeline fix
It's banking on a year-end resolution through EMA under amended Gas Act
By Ronnie Lim

Straits Times 9 Oct 07
Why Singapore needs to diversify gas imports

By Azhar Ghani

JAKARTA - THE Singaporean watching television in his Toa Payoh flat and the poor Javanese farmer toiling in Indonesia's rice fields have something in common - they both rely on Indonesian natural gas to be able to do what they are doing.

So do businesses in Singapore as well as their counterparts in other Asian economies like Japan, South Korea and, to some extent, China.

These days, signs point to an impending increase in Indonesia's own gas needs - a development expected to sharpen an already keen competition for the commodity.

Why should Singapore be concerned?

Some 80 per cent of Singapore's electricity is generated by gas-powered plants, the rest by oil. In 2005, the island consumed 6.5 billion cubic metres of natural gas. Less than 25 per cent was piped in from across the Causeway; the rest supplied by Indonesian gas fields in Sumatra and Natuna, a site in the South China Sea.

Malaysia's portion is expected to shrink to about 20 per cent next year, when Island Power becomes Singapore's fifth gas importer, piping in gas from Sumatra.

To illustrate how much Singapore relies on Indonesian gas, consider this: When gas supply from Malaysia was disrupted in December, it caused a 45-minute blackout in seven areas. But when a technical fault cut off the Indonesian source in June 2004, half of the island plunged into a blackout for a day.

Even as Singapore grows more dependent on Indonesian gas, Indonesia's own gas needs are also swelling, not just for power-generation, but also for agriculture, where natural gas is the main raw material for fertilisers used by millions of its farmers.

Agriculture accounts for some 31 million jobs - or a third of Indonesia's working population. Aside from supplying jobs, agriculture - especially rice cultivation - is also seen by the government to be a strategic sector crucial for producing enough food for Indonesians, so that the country does not have to rely on other states.

As deputy state minister Agus Pakpahan, who overseas state-owned agricultural enterprises, puts it: 'Agriculture is a strategic instrument for generating income and employment opportunities, and reducing poverty.

'So the growth of agriculture is one of the most important factors in increasing the rate of economic growth.'

As for electricity generation, Indonesia has finally decided to join a growing group of countries shunning oil for gas to fuel their power plants, owing to steep oil prices.

Gas now accounts for only about 27 per cent of its energy mix, with oil still dominant at 55 per cent.

There is further incentive to cut oil use, as the government spends a hefty sum each year subsidising oil products for domestic users. This year, the government allocated some 56 trillion rupiah (S$9.07 billion) for oil subsidies - or about 7 per cent per cent of the state budget.

As domestic pressures mount, nationalistic calls for more gas to be used locally - and less to be exported - have also become louder.

Said legislator and economist Drajad Wibowo: 'If we export the gas, it will benefit only those few in the gas business and their overseas buyers. So we should ask the government whose side it's on - foreign investors or local businesses?'

Indeed, President Susilo Bambang Yudhoyono indicated last year that there would be a policy change. But the government would not cut all exports and would honour its existing sales contracts.

'More gas will be supplied to domestic industries,' he said.

Popular though this may be, it will come at a price.

Currently, Indonesia is a leading exporter of liquefied natural gas (LNG), or gas that has been super-cooled to liquid form for shipping. For 30 years it had been the top global player until Qatar overtook it last year.

Still, it reaped US$10.4 billion (S$15.3 billion) from LNG exports last year. Of the 22.7 million tonnes shipped out, 14.3 million tonnes went to Japan and 5.06 million tonnes to South Korea - the world's top two buyers.

These foreign LNG customers pay up to four times as much for gas compared with domestic users - which means that Indonesia will lose lucrative export revenues if it prioritises domestic sales.

Energy analysts say the call to supply more to domestic users would also deter new investments in the gas extraction industry, currently dominated by foreign companies, who would balk at funding new projects for less profits. This could choke future supplies as current gas wells diminish, warn analysts.

These developments are unfolding even as the world grows hungrier for gas. Global consumption expanded an average of 2.5 per cent a year between 1996 and 2005.

Small wonder that Indonesia's existing customers are getting nervous and trying to lock in supplies.

Japan, for one, signed an economic pact with Indonesia in August in return for the renewal of gas contracts due to expire in 2010 and 2011. Even so, Indonesia can only confirm about a quarter of its current level of supply.

The Japanese move came in the wake of a US$8.5 billion deal that China struck with Indonesia last year. Under the contract, Indonesia will supply 2.6 million tonnes of LNG annually for 25 years.

Singapore, whose contract for piped Indonesian gas ends in 2022, has taken some steps as well. But its plans involve moving away from Indonesian gas supplies rather than locking them in. Such a move to diversify sources, say analysts, is imperative for the Republic's energy security.

Last year, Singapore approved plans for its first LNG terminal. Due to start operating in 2012, the $1-billion facility means the island will no longer be totally dependent on gas piped in directly from its neighbours.

Supplies can be shipped in the form of LNG from sources farther away, such as Qatar, Iran and Australia, and then converted through the terminal into gas form.

Business Times 09 Oct 07
Island Power still hoping for quick gas pipeline fix
It's banking on a year-end resolution through EMA under amended Gas Act
By Ronnie Lim

US-OWNED Island Power - whose S$1 billion cogeneration investment on Jurong Island is now in question - says it still hopes for a speedy resolution to its Singapore gas pipeline access woes to help kickstart its power project again.

'We still hope for an expeditious resolution to the gas transportation issue,' an Island spokesman told BT yesterday, after the Intergen-owned company confirmed that its Indonesian gas supply contract was cancelled due to the transportation issue.

This has forced Island to suspend all construction work on the 785-megawatt station for up to six months, during which time it hopes the pipeline access snag can be unravelled.

Responding to BT queries on where Island's application to the Energy Market Authority to resolve the issue now stands, EMA corporate communications director Choo Wai Chan said that 'the due process for consideration of such applications is in progress'.

'EMA will have to give the parties involved a fair hearing in its consideration of the applications,' she added.

Last week, ConocoPhillips terminated Island's contract to buy 110 million cubic feet of gas daily for 15 years from its gas field in Sumatra.

This comes after several warnings earlier this year by Indonesia's oil and gas regulator, BP Migas, that it would cancel the deal if Island failed to secure gas transportation rights through the Singapore section of the existing Sumatra-Singapore pipeline.

Island has been fighting for pipeline access since 2002, but was blocked first by earlier legal tangles between the incumbents, gas importer Gas Supply Pte Ltd (GSPL) and pipeline operator PowerGas, and then subsequently, commercial issues.

Following recent amendments to the Gas Act i n May - which enhances EMA's powers in directing open access - Island in July filed a Section 38a application to the EMA to help it resolve the pipeline access issue.

Section 38a enables EMA to decide the terms of the pipeline access, including charges to be levied, if Island is unable to negotiate terms with the incumbents, GSPL and PowerGas.

Given the Act's indicative six-month deadline for settlement, Island is apparently counting on a year-end resolution to the pipeline issue, which would then open the way for it to renegotiate a new gas deal with Indonesia.

'We are working hard with relevant stakeholders to sort out the impact of regulatory and gas transportation issues and evaluate different options for taking the project forward,' the Island spokesman told BT.

Island sources earlier stressed that while it has suspended construction, the company has not given up on the project.

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