ASEAN Energy News Service

Source: Bangkok Post, 20 May 2009

Despite the cyclical downturn of the upstream petroleum industry, PTT Exploration and Production Plc (PTTEP) is confident it can increase petroleum production to 900,000 barrels of oil equivalent per day (boed) by 2020.

The country’s sole petroleum explorer expects output from its fields will rise to 301,000 boed in 2013 and to 900,000 boed seven years later, almost four times the current 240,000 boed.

“The significant rise in production is based on both our 485-billion-baht investment budget for this year to 2013, but also good preparation,” said CEO Anon Sirisaengtaksin.

“We have to focus on increasing our competitiveness against global peers at a time of poor sentiment.”

Cash on hand, human resources and expanding petroleum reserves are the major facets in the company’s bid to achieve its goal, he added.

PTTEP currently operates 40 petroleum projects in 13 countries as a result of its attempts over the past several years to acquire assets and exploration and production (E&P) licences in many countries, including Egypt, Iran, New Zealand and Australia.

The company is negotiating with E&P platform producers to cut payment charges, which are higher than market rates because they were agreed to last year when costs were higher. The price of equipment has fallen sharply since oil prices declined late last year.

“Last year we were worried about a shortage of equipment as each year we need 20-30 platforms to serve our E&P activities,” he said.

Installation costs were about US$20 million each at that time. But as structural steel prices have declined, equipment prices are down by at least 10%, so the company will save a lot of money if it succeeds in its negotiations with the suppliers, he said.

PTTEP currently has cash on hand of approximately 50 billion baht, which it needs to reserve as it foresees fluctuations in crude prices. The company last week announced the country’s largest corporate bond issue worth 40 billion baht last week.

PTTEP is also developing human resources to serve expansion, including geologists, petroleum technicians and engineers through overseas scholarships provided to 20 people, both fresh graduates and professionals each year.

Human resources in this field were in short supply over the past several years, because engineering graduates tended to further their education by seeking degrees in business administration and finance.

“This is because of a perception by students about jobs in this field that they needed to stay on a platform every day,” Mr Anon said.

PTTEP resolved this problem by offering employees experience in other fields by rotating staff.

“We also need to develop the skills of our field employees since they are too young to handle such complicated jobs, particularly overseas projects. We had some success in limited depth level work in the Gulf of Thailand,” he said. PTTEP still plans on recruiting experienced foreign geologists, engineers and technicians to work on overseas projects. Experienced engineers and technicians normally need to spend at least eight years in the field.

“But we need a shortcut to cope with the rising number of overseas projects, so we tend to train them intensively and have frequent job rotation to let them experience difficult tasks and techniques,” he said.

For example, new technology in seismic testing has led to the company to a 70% success rate. But seismic testing expertise needs to be high to keep that success rate. That means that 70% of its wells are commercially viable, higher than the global industry rate of 50%.

“The success rate doesn’t depend on exploration technology alone, but also skillful technicians who can apply different techniques to help us discover more in some wells, so we need to speed up that development,” he said.

PTTEP operates several deep-sea projects in the Andaman Sea, Australia and New Zealand.As well, the company is preparing to adopt new technology for its new business area, floating liquefied natural gas (FLNG) in Australia, in which the company acquired assets and an E&P licence of Australia-based Coogee last year.

PTTEP’s proved reserves at the end of 2008 totalled 944 million boed, excluding its M9 block in Burma and more fields in Australia.

PTTEP shares closed yesterday on the SET at 127.50 baht, up 9.50, in trade worth 3.4 billion baht.

Source: The Jakarta Post, 20 May 2009

Indonesia cannot meet its coal production target in the first quarter of this year due to technical issues, including heavy rain, energy and mineral resources ministry director said.

Bambang Gatot Ariyono, director for coal and mineral development at the energy and mineral resources ministry, said that the coal production in the first quarter of this year was only 30 million tons or lower than the initial target of 50 million.

“Coal companies reports some technical problems hampering their production. Included in the problems is heavy rains,” Bambang told reporters Wednesday.

Despite the lower production in the first quarter, Bambang said Indonesia would still be able to reach the full year production target of 220 million tons.

“Coal companies have said that they will boost their production in the second quarter,” he said.

Source: Bangkok Post, 19 May 2009

Southeast Asian nations have joined East Asian nations to draft a road map for a regional oil stock to avoid disruption in supply, said Dr. Weerawat Chantanakome, energy policy planning councillor for the Ministry of Energy.

The plan concerns the Asean Petroleum Security Agreement (APSA), inked by Asean countries in March to design an appropriate level of inventory of crude for member countries. The expected completion date is 2010.

“How much stock each country will store depends on their will, as each country has its own conditions, level of development and market requirements,” said Dr Weerawat at an energy security meeting in Bangkok held by the International Energy Agency (IEA) yesterday.

Possible options for use as the regional stock include a natural gas pipeline or a power transmission grid designated for use in that region.

For example, the Asean co-development project, a 2,000-kilometre oil and gas pipeline network worth US$1.5 billion, will travel from the west coast of Burma to Yunnan province in China, and will be used as an inventory for crude from the Middle East to China.

Surong Bulakul, senior executive vice-president for PTT, said Thailand learned a lesson about the risk of brownouts last summer as a result of the unexpected drop of natural gas output from the Mataban Sea.

“An emergency can happen with any country, but for any one country to prepare for this, they need a massive budget as it requires development of human resources, regulation improvement and fuel diversification,” he said.

Didier Houssin, IEA director of energy markets and security, suggested Asean look at what happened when Russia, the major natural gas supplier for Europe, had a dispute with the Ukraine, where its pipeline runs to reach the continent. The whole region was damaged, with a three-week suspension of gas transmission.

“We need to secure supply, because the losses from the gas suspension were unbelievable,” he said.

“Because the whole continent depended on a single source [of energy], when it was cut, it was unavoidable for the whole continent to feel the pinch,” Dr Houssin said.

Now European countries have learned to develop their own storage facilities for the next crisis, he said.

Source: The Jakarta Post, 18 May 2009

Publicly listed energy company PT Medco Energi Internasional (Medco) is planning to acquire BP Indonesia’s stake in the Offshore North West Java Sea (ONWJ) block, West Java.

Medco operational director, Lukman Mahfoedz, said on Monday that the company is evaluating the acquisition of the block that mainly produces natural gas.

“We were invited by BP and are evaluating the commercial value (of the acquisition),” he said as reported by Antara state news agency.

Lukman also said that Medco is eyeing on the possibility of sharing ownership of the stake with other companies. He, however, refused to name any.

On the heels of BP Indonesia’s plan to sell its 46 percent shares in ONWJ, several other energy companies are also buckling up to acquire the ONWJ block.

Spokesman for PT Pertamina, Basuki Trikora Putra, said the state oil and gas company had partnered up with PT Indika Energy and prepared internal funding for the acquisition.

Reportedly, PT Energi Mega Persada is also planning to buy BP Indonesia’s shares.

BP Indonesia, a unit of British American firm BP Plc., had planned to complete the divestment by the end of 2009.

The ONWJ concession stretches from Cirebon in the east to the Thousand Islands, Jakarta, in the west.

The block supplies gas to fertilizer company PT Pupuk Kujang, state electricity company PT PLN and state gas company PT PGN.

Other major shareholders in ONWJ include China’s CNOOC with 36.72 percent, Japan’s Inpex with 7.25 percent and Itochu Oil Exploration with 2.85 percent.

Source: The Jakarta Post, 18 May 2009

Indonesia and Vietnam have agreed to increase cooperation in the energy and mineral resources sector following the signing of a new bilateral agreement on energy, oil and coal mining, tempointeraktif.com reported on Monday.

“The two parties have expressed interest in expanding the tripartite cooperation initiative [Petronas/Malaysia, Petrovietnam/Vietnam, dan Pertamina/Indonesia] as a model for cooperation among ASEAN countries,” Oil and Gas Directoral General Evita Legowo said.

She added the government would also be looking into ways to facilitate Vietnamese investments in the country.

The initiative was a byproduct of the Joint Commission on Economic, Scientific and Technical Cooperation ke-5 (JCESTC-5) held in Vietnam’s capital Ho Chi Minh City in late April.

The agreement will also pave the way for education and training exchange in the energy and mineral resources sector, including electricity, coal and renewable energy.

Source: ThanhNien News, 16 May 2009

Vietnam Oil and Gas Group, or PetroVietnam (PVN), has received the government’s approval to raise the price at which it sells gas to power plants to counter a slowdown in its earnings caused by higher maintenance costs.

With effect from June 1, PVN said it would increase its gas price from US$2 to $2.80 per one million BTU, or British Thermal Unit, a measure of thermal heat energy.

The increase follows a slide in PVN’s margins from selling to power plants in the southeastern region, with the return on investment in gas production declining from 21.7 percent in 2007 to 18.7 percent last year.

The rate is expected to drop further to 10.3 percent this year.

PVN said higher maintenance costs and a tax hike of 2.2 US cents to 7.2 cents per cubic meter this year is the main cause of the falling margins.

The new price is reasonable, Thoi bao Kinh te Saigon said, citing the Ministry of Industry and Trade.

Power plants’ operating costs are expected to increase by an average of around VND238 billion ($13.4 million) this year, Tuoi Tre newspaper said.

The average power price was increased by 8.9 percent to VND948.5 for a kilowatt-hour on March 1.

The state power company Electricity of Vietnam, the country’s biggest gas consumer, has yet to respond to the news of the gas-price hike, Thoi bao Kinh te Saigon reported.

Source: Associated Press, 13 May 2009

Oil prices rose to near $60 a barrel Wednesday in Asia as an unexpected fall in U.S. crude inventories suggested demand may be picking up.

Benchmark crude for June delivery was up 88 cents to $59.73 a barrel midday in Singapore, in electronic trading on the New York Mercantile Exchange. On Tuesday, the contract rose to a six-month high of $60.08 a barrel before settling at $58.85, up 35 cents.

After settlement in New York, the American Petroleum Institute said oil stocks fell 3.13 million barrels to 370.7 million last week. Analysts had expected a gain of 1.4 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

“The big driver today is the API number,” said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. “That’s a pretty big draw when people were expecting a build.”

Investors will also be watching for the weekly petroleum inventory data from the Energy Department’s Energy Information Administration on Wednesday. According to the EIA, crude stocks have risen ten consecutive weeks and are near 19-year highs.

Prices have jumped from below $35 a barrel in February on investor optimism that the worst of a severe U.S. recession is over. However, some traders are skeptical that still-weak global crude demand can justify the recent rally.

“There’s a good chance the price will blast through $60 in the short-run,” Chu said. “But I don’t see the demand out there yet.”

In other Nymex trading, gasoline for June delivery rose 2.39 cents to $1.70 a gallon and heating oil gained 2.30 cents to $1.53 a gallon. Natural gas for June delivery jumped 11.4 cents to $4.46 per 1,000 cubic feet.

Source: The Jakarta Post, 5 May 2009

The Chinese government has put aside any hard feelings about Indonesian business deals after agreeing to let its lenders ink a US$1.06 billion loan deal with state-run power company PT Perusahaan Listrik Negara (PLN) to help finance the government-sponsored 10,000 megawatt (MW) power plant program.

PLN has mobilized $579 million from the Export-Import Bank of China (Cexim) and $455 million from Bank of China (BoC), PLN said in a statement on Monday.

PLN president director Fahmi Mochtar, Cexim vice president Li Jun and BoC general manager of corporate banking department Tang Mao Heng signed the deal on the sidelines of the Asian Development Bank (ADB) annual meeting in Bali.

“Cexim will lend $481 million for (three 350 MW) power plants in Pelabuhan Ratu and $124 million for (two 110 MW) plants in Aceh, while BoC lends $455 million for (three 315 MW) plants in Teluk Naga,” said Finance Minister Sri Mulyani Indrawati, who witnessed the signing.

Cexim loans have a 15-year maturity, with a three-year grace period, while BoC loans carry a 13-year maturity, and three-year grace period.

With the loans, taking into account the proceeds from the PLN global bond issue, funding for the much-needed 10,000 MW program has reached 84 percent, PLN said.

So far, PLN has secured $3.25 billion loans from local and overseas lenders to finance the program.

According to PLN, it needs a total of $4.8 billion and Rp 19 trillion for power plant constructions.

“We still need about $1.55 billion (of foreign currency funding) more. We have $900 million (of loans) in process and are still in negotiation, verification, documentation and review,” said Rudiantara, PLN’s vice president director.

He refused to name the lenders, which are international banks.

Rudiantara said PLN would look for the cheapest loans possible.

With PLN already cashing in some loans, seven of the 10,000 MW projects have been fully funded and can start construction by the year end, according to Rudiantara.

The projects include Paiton (660 MW), Suralaya (625 MW), Labuan (two times 315 MW), Indramayu (three times 330 MW), Rembang (two times 315 MW), Pelabuhan Ratu (three times 350 MW) and Teluk Naga (three times 315 MW).

The Pelabuhan Ratu and Teluk Naga plants are expected to start operating in early 2010, while the Aceh plants should start up in early 2011.

Regarding Mulyani’s request to use Chinese yuan instead of US dollars for procurement of project facilities from China, Rudiantara said PLN was still discussing the terms with Chinese banks and contractors.

“This involves two transactions; procurement and lending, then the central bank. Coordination between the parties is needed,” he said.

Indonesia and China have agreed to swap Rp 175 trillion or 100 billion yuan (about $15 billion) to lessen exposure to the US dollar, according Bank Indonesia.

“By replacing dollars with yuan, both contractors and PLN will gain as this will reduce losses resulting from currency fluctuations,” said Rudiantara.

The loans from China had been put on hold after a row between state airline PT Merpati Nusantara and China’s Xi’an Aircraft Industry.

The dispute started after Merpati failed to fulfill its commitment to pay up to $230 million for the purchase of 15 Xinzhou-60 aircraft, at around $15 million each, as stipulated in a contract it had signed in 2006 with Xi’an, after delivery of only two aircraft in 2008.

Merpati was using a soft-loan facility from the China Export Import Bank to finance the purchase. Xi’an has said it might take the dispute to international arbitration.

Merpati said it would only be able to pay for a total of eight aircraft due to financing problems.

Aside from that, Chinese banks also requested that Indonesia agree to higher loan interest rates for the PLN loans than those previously agreed upon last year.

It was not until Mulyani’s trip to China in late March that the obstacles were cleared. Both countries agreed to review the deal between Merpati and Xi’an and urged the Chinese lenders to stick to their original interest rate commitment.

Indonesia has moved quickly to resolve a string of business problems plaguing its relations with powerhouse China, a step deemed crucial at a time when Indonesia is struggling hard to survive the impacts of the global economic downturn.

“Among the problems that needed to be urgently resolved were China’s pledges to help finance our *first phase* 10,000 MW power program. There have been some delays in the channelling of these loans from Chinese banks,” said Mulyani on March 23.

Source: The Jakarta Post, 20 Apr 2009

The state-owned electricity company PT PLN has welcomed the International Finance Croporation (IFC)-initiated biomass power plant projects using palm oil wastes and rice husks, an official says.

PT Perusahaan Listrik Negara vice president Rudiantara said that PLN was ready to buy the electricity generated from such power plant projects, as it was in line with the company’s objective to boost the use of renewable energy.

“We’ve always been encouraging the use of such renewable energy. We’re ready to deal with them on the purchase of their electricity,” Rudiantara told The Jakarta Post over the weekend.

The first phase of the IFC program is targeting the waste from palm oil and rice milling to be used as fuel to generate power.

According to the IFC, by implementing these projects these industries are not only able to reduce their production costs by up to 30 percent, but also to help preserve the environment by substituting for the use of oil and diesel.

Rudiantara noted that the business deals would be under the electricity excess supply provisions, by which PLN can buy available excess power generated from these plants, under the independent power producer scheme.

“Our deals will be based on the prices they offer, while the nearness to our electricity grid will also be taken into consideration,” he added.

Indonesia last year produced about 19 million tons of crude palm oil and about 60 million tons of rice. Amid the rising demand for electricity but slow growth of supply using mostly fuel oil, diesel fuel and coal, this huge amount of agricultural wastes has great potential for generating electricity and to help to re-green the environment.

Electricity analyst Fabby Tumiwa noted that based on a study conducted in 2006, when palm oil production reached 15 million tons, the biomass produced (of roughly the same amount) could be used to generate a total of 4.2 million megawatt hours of (MW) electricity.

“With such abundant palm oil wastes currently, I think we could produce electricity from such wastes up to about 5 percent of the total PLN’s production capacity of 120 terawatt hours (TWH),” he said.

He said that there were about 371 palm oil mills in Indonesia with most of them operating in Sumatra. Also there are thousands of rice mills operating in the country, mostly in remote areas in Java and Sumatra. Palm oil factories often need between 3 to 10 MW electricity on average to support their production activities while rice mills are often smaller in Indonesia, and need smaller power units

Source: The Jakarta Post, 20 Apr 2009

Oil and gas operators can no longer claim cost recovery expenses for gas delivery transmission pipelines and LNG terminals as a new cost recovery regulation will categorize these items as unrecoverable.

A new government regulation on oil and gas cost recovery management, currently being drafted, will switch some cost components from the upstream side to the downstream side, including spending on pipeline transmission systems and LNG terminals, Energy and Mineral Resources Ministry Purnomo Yusgiantoro said Saturday.

“We hope that this will decrease spending on cost recovery in our state budget,” Purnomo said as quoted by the ministry’s official website.

The so-called cost of recovery mechanism previously allowed certain funds spent by oil and gas contractors on upstream activities to be reimbursed by the government after the production phase began.

The objective of this measure was mainly to serve as an incentive to boost investment in the sector, so as to promote the replacement of aging oil wells with declining production, which required additional investment to procure new technology and equipment in order to retain or even increase production.

However, critics have long questioned the program’s transparency and said that this is prone to abuse.

The government paid oil and gas contractors around US$9.35 billion under the scheme last year, up from $8.7 billion in 2007.

The government and the House of Representatives have agreed to cap cost recovery spending at $12 billion this year.

Although payment for cost of recovery has been increasing over the years, so have state revenues from the oil and gas industry.

In 2003, state revenues from oil and gas amounted to $ 10.845 billion while in 2008 the figure jumped to around $35.338 billion, rising by more than three times, according to ministry data.

The government has taken several measures to reduce the pressure of cost recovery spending on the state budget.

In June last year, the government issued a regulation scrapping 17 contracts containing the cost recovery mechanism.

However, upstream oil and gas regulator BPMigas said these new regulations would only save a limited amount of money.

“This will only reduce *annual* expenses by 1.8 percent,” BPMigas chairman R. Priyono told reporters on Sept. 24 last year.

Both Minister Purnomo and Priyono have repeatedly said the government might delay paying part of oil and gas contractors 2008 spending, which is supposed to be reimbursed this year, to next year in a bid to anticipate and mitigate the growing state budget deficit.

Now, the energy and mineral resources ministry is formulating a government regulation to control cost recovery.

The switching of cost components from the upstream side to the downstream side will be stipulated in the regulation.

The regulation was supposed to be finished in January, but the government said it needed more time to synchronize this with other regulations, including taxation laws.

The government expects oil and gas contractors will spend more than $20 billion in investment this year, up from $19 billion in 2008, in the hope of boosting the country’s production of oil and gas.

Oil and condensate daily production in 2008 averaged 967,778 barrels per day (bopd), or 99.96 percent of the 977,000 bopd target in the 2008 state budget, higher than the 2007 daily average of 954,400 bopd.

The production increase was the first, albeit minor increase, after a 10 years declining trend.

For 2009, the government targets oil production to reach 960,000 barrels of oil per day (bopd) which would be slightly lower than 2008.

For natural gas, the daily average production was 3.8 percent short of the 7.757 million standard cubic feet of gas per day (MMscfd) target, but still 2.4 percent higher than the actual daily production of 7.283 MMscfd achieved in 2007.

Indonesia’s oil reserves (proven, probable and possible) as of January of 2008 reached more than 8 billion barrels, while gas reserves assessed up to the same period reached 170 trillion standard cubic feet