Jakarta (Platts)--22Jan2013/534 am EST/1034 GMT

Indonesia's state-owned oil and gas company Pertamina has signed a heads of agreement with state-run power utility Perusahaan Listrik Negara for the latter to use Arun LNG's regasification facilities once the liquefaction plant has been converted.

Under the agreement inked Tuesday in Jakarta, PLN will regasify 1 million mt/year of LNG, or 105,000 Mcf/d of gas, at the plant, a senior PLN official said.

PLN will pay Pertamina $1.2-1.6/Mcf of gas that it regasifies at the plant, Suryadi Mardjoeki, PLN's head of fuel division told Platts. "The gas will be used to meet power demand in Aceh and North Sumatra," he added.

Pertamina in November awarded local contractor Rekayasa Industri an engineering, procurement and construction contract for the conversion of the 33-year old Arun LNG plant into a receiving and regasification terminal.

The company, however, is yet to sign the final EPC contract as it wants to ensure that it has firm LNG supply deals before it proceeds with the conversion.

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The HOA with PLN will help the company move closer to finalizing the conversion project.

Pertamina expects to get another LNG supply contract from a domestic project, Pertamina Gas Director Hari Karyuliarto said Tuesday. But if it does not get domestic LNG allocations, the company will look at imports, he added.

The company's communications chief, Ali Mundakir, said Tuesday that Pertamina is targeting a mid-2014 completion of the conversion project.

REGASIFICATION CAPACITY

Pertamina is planning for the Arun facility to have a regasification capacity of 400,000 Mcf/day and the gas will be allocated for power generation, to fertilizer companies and other industries in Nanggroe Aceh Darussalam and North Sumatra provinces, the company said earlier.

The Arun LNG plant, located in Nanggroe Aceh Darussalam, started operations in 1978 and strengthened Indonesia's position as an LNG exporter. The country had just begun exporting LNG from its Bontang plant the year before.

The plant, with an annual production capacity of 6.5 million mt across four trains, had been a reliable LNG supplier to Japan and South Korea until around 2004 when dwindling gas production at nearby fields led to a drop in the plant's output.

The facility has been exporting under 30 LNG cargoes since 2011 compared with 38 in 2010 and an average of around 150 cargoes between 1978 and 2003. Arun NGL, operator of the plant, has been gradually winding down its export contracts from the plant and the last of the contracts with the Japanese and South Koreans are due to expire in 2014.

PLN'S SECOND AGREEMENT

This is PLN's second regasification deal in less than two months.

The utility last month signed a HOA with BP for the British major to supply PLN with 23.96 million mt of LNG from its Tangguh project in eastern Indonesia.

The companies expect to convert the HOA into a sales and purchase agreement by mid-2013, BP Regional President Asia Pacific William Lin said late December.

The contract is expected to run for 20 years starting in 2013 and is worth a total of $5.80 billion, Indonesian Energy and Mines Minister Jero Wacik said after the signing of the HOA.

PLN will process the LNG at Nusantara Regas' 3 million mt/year West Java floating storage and regasification unit for a regasification fee of $2/MMBtu.

Nusantara Regas is a joint venture between Pertamina (60%) and gas utility Perusahaan Gas Negara (40%).

--Anita Nugraha, newsdesk@platts.com
--Edited by Mriganka Jaipuriyar, mriganka@platts.com; E Shailaja Nair, shailaja_nair@platts.com

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