*INDONESIAGAS/LNG DEVELOPMENT POLICYBY : DIRECTORATE OF PROCESSING AND COMMERCEDIRECTORATE GENERAL OF OIL AND GASREPUBLIC OF INDONESIAAPEC EGCFE WORKSHOPTAIPEI, MARCH 21-23, 2005

*Outline of Presentation The Role of Natural Gas in Indonesia Domestic Export (LNG and Pipeline) Indonesia Gas Reserves Indonesia Gas Production and Utilization Government Policy on Natural Gas The Future Market Development of Indonesia LNG Conclusion

*OILSOURCES OFENERGY FORDOMESTICTHE ROLE OF GAS FOR INDONESIAN DEVELOPMENTINDONESIAN DEVELOPMENTSOURCES OFGOVERNMENTSINCOMEFEEDSTOCKTO STRATEGICINDUSTRIESGASENERGY SECTOR

*INDONESIA GAS RESERVES( STATUS JANUARY 2003 )8.80,737.526.65.95.754.844.519.3ACEHCentralSumateraPAPUANATUNAEast JavaNorthSumateraSouth SumateraEastKalimantanWest Java4.1SULAWESI

* INDONESIA GAS RESERVES (1984-2003)

* INDONESIA GAS PRODUCTION AND UTILIZATIONYEAR 2003 PROD.

8,42 BSCFD

PSC 7,49 BSCFD

PERTAMINA0,93 BSCFD57.6%42,4%DOMESTICEXPORTGASUT2001/14-01-2002

Sheet1

MMSCFD(%)

FERTILIZER696.58.3

REFINERY63.00.7

LPG/LEXPLANT77.10.9

STATE GAS COMPANY435.45.2

CEMENT7.90.1

ELECTRICITY500.25.9

STEEL INDUSTRY71.50.8

ANOTHER INDUSTRY273.23.2

OWN USE968.811.5

FLARING/LOSSES473.75.8

3,567.342.4

LNG4516.253.6

LPG15.50.2

GAS PIPE321.53.8

TOTAL EXPORT4853.257.6

8420.5

*INDONESIA GAS PRODUCTION AND UTILIZATION

*INDONESIAS LNG PLANT BontangCapacity : 21.64 mtpa(8 Trains)Start up 1977Plant to be expanded : Train I TANGGUHGAS RESOURCESCapacity : 7 mtpaStatus:Under ConstructionARUNCapacity : 12.85 mtpa(6 Trains )Start Up 1977

*LNG INDONESIATrain 1 2.14 MMTon/yr 1978Train 2 2.14 MMTon/yr 1978Train 3 2.14 MMTon/yr 1978Train 4 2.14 MMTon/yr 1983Train 5 2.14 MMTon/yr 1984Train 6 2.14 MMTon/yr 1986EXISTING FACILITIESARUNTrain A 2.62 MMTon/yr 1978Train B 2.62 MMTon/yr 1978Train C 2.62 MMTon/yr 1978Train D 2.62 MMTon/yr 1983Train E 2.73 MMTon/yr 1984Train F 2.73 MMTon/yr 1986Train G 2.74 MMTon/yr 1986Train H 2.95 MMTon/yr 1986BONTANGPLANT TO BE DEVELOPED LNG Tangguh (2 x 3.5 MMTon/yr) Bontang Train I (3 MMTon/yr)

*INDONESIAN LNG EXPORT

(Million Tons)

*INDONESIA LNG CONTRACTS

*INDONESIA LNG CONTRACTEXISTING NEW / EXISTING

CONTRACTVOLUME (MTPA)MARKETLNG PLANTTERM

ARUN II3,51JAPANARUN1/1984 12/2004ARUN III2,33KOREABONTANG/ARUN1986 2007KOREA II1,95KOREABONTANG/ARUN7/1994 6/2014JAPAN 1981 (Ext)3,47JAPANBONTANG8/1983 3/2003BADAK III1,76TAIWANBONTANG1/1990 12/2009BADAK IV2,30JAPANBONTANG1/1994 12/2013JAPAN 1973 (Ext)8,34JAPANBONTANG1/2000 12/2010TAIWAN1,90TAIWANBONTANG1/1998 12/2017BADAK V1,05KOREABONTANG1/1998 12/2017MCGC0,34JAPANBONTANG3/1996 12/2015TOTAL26,96

JAPAN 1981 (Ext)3,47JAPANBONTANG4/2003 3/2011ARUN (Ext)1,00JAPANBONTANG1/2005 12/2009FUJIAN2,60CHINATANGGUH1/2007 12/2031KOGAS1,10KOREATANGGUH1/2005 12/2024SEMPRA ENERGY3,70US WEST COASTTANGGUH6/2008 6/2028TOTAL11,87

*INDONESIA GAS TRANSMISSION MAP

*GRAND STRATEGIESTO GUARANTEE THE SUSTAINABILITY OF GAS SUPPLY AND DEVELOPMENT OF ITS INFRASTRUCTURE

TO EXPAND CURRENT GAS PIPELINE TRANSMISSION AND DISTRIBUTION NETWORKS IN A SCHEDULE STEP WISE MANNER.

TO UTILIZE GAS RESERVE AT CERTAIN LOCATION OPTIMALLY, BY TAKING INTO ACCOUNT FACTOR SUCH AS THE SIZE, AVAILABILITY AND LOCATION OF THE RESERVE, GAS DEMAND, REQUIRED INFRASTRUCTURE AND TECHNICAL AND ECONOMICAL FEASIBILITY

*TO CREATE A CONDUCIVE INVESTMENT CLIMATE TO GUARANTEE THE SUSTAINABILITY OF GAS SUPPLY AND DEVELOPMENT OF ITS INFRASTRUCTURE. THIS HAS BEEN REALIZED BY MINISTER OF ENERGY AND MINERAL RESOURCES (MEMR) BY PROVIDING A MORE ATTRACTIVE FISCAL INCENTIVES;

TO EXPAND TRANSMISSION PIPELINE SYSTEM AND DISTRIBUTION OF NATURAL GAS THAT THEIR DEVELOPMENT ARE CONDUCTED GRADUALLY AND IN LINE WITH SCHEDULE

TO OPTIMIZE THE UTILIZATION OF NATURAL GAS RESERVE EXISTING IN A CERTAIN AREA BY CONSIDERING THE AVAILABILITY/RESERVES (AMOUNT AND LOCATION), DEMAND/MARKET (AMOUNT AND LOCATION), REQUIRED GAS INFRASTRUCTURE AND TECHNICAL FEASIBILITY (SPECIFICATION, DELIVERABILITY, ETC) AND ECONOMICS (INVESTMENT, ETC)OPTIMIZING UTILIZATION OF NATURAL GAS

*GAS POLICYS PLATFORMFOR DOMESTICTO ROLL BACK PETROLEUM FUEL SUBSIDY TO INCREASE ROLE OF GAS IN THE ENERGY MIXINCREASE ADDED VALUE OF GASNEW LNG CENTRESTRANS ASEAN GAS PIPELINE PROJECT IMPLEMENTATIONFOR EXPORTSTRATEGIC STEPS GAS FOR VEHICLES CNG, LPGGTL TECHNOLOGY (METHANOL, DME) FOR ENERGY GAS FOR POWER GENERATION, CITY GAS AND PETROCHEMICAL INDUSTRY INCENTIVES FOR GAS PRODUCER : INCREASE EXPLORATION AND DEVELOPMENT OF FRONTIER AREA AND MARGINAL FIELDS

*PREVIOUSLY LARGE GAS RESERVES ARE AIMED FOR EXPORT OBJECTIVE AND SMALLER GAS RESERVES ARE INTENDED FOR DOMESTIC USE. THIS PARADIGM HAS CHANGED, THE GAS RESERVES EITHER HUGE OR SMALL AMOUNT, CAN BE UTILIZED FOR DOMESTIC NEEDS DEPENDING ON ITS ECONOMICS.

GAS INFRASTRUCTURE (ALIGNED WITH THE MASTER PLAN OF THE ASEAN GAS GRID) IS DEVELOPED TO CONNECT SUPPLY POINT WITH CONSUMER POINT.

THE UTILIZATION OF NATURAL GAS IS BASED ON THE MOST ECONOMIC OPTIMIZATION OF THE NATIONAL ENERGY SUPPLY.GOVERNMENT BASIC POLICY

*

DOMESTIC VS EXPORT ISSUEDEVELOPMENT OF LNG BUSINESS ROLE OF GAS IN INDONESIAS ENERGY MIXSHIFTING PARADIGM FOR LARGE GAS RESERVES THE LOCATION OF GAS RESERVES FROM DEMAND CENTER (GEOGRAPHICAL ISSUE)PRICING MECHANISM AND POLICYGAS INFRASTRUCTURE INDONESIA INTEGRATED GAS PIPELINE SYSTEM TRANS ASEAN GAS PIPELINE (TAGP)KEY ISSUES

*In early 2000, LNG market experienced a tight competition, indicating over-supply situation, and lower price of LNG.

The expected growing LNG demand worldwide, particularly in some countries has brought a new dynamics on LNG market.

The potential market for LNG is huge

For Indonesia, the world LNG market is the opportunity to diversify Indonesian LNG to a new market that provides challenging Terms and Conditions, including LNG pricing.

THE MARKET DEVELOPMENT OF INDONESIAS LNG

*Future Indonesian LNG development will be focused on :

Expanding Capacity in the existing LNG plants and developing new LNG Centers

Maintaining the existing LNG supply for traditional market (Japan, South Korea, and Taiwan)

Entering new market, US west coast and China Providing sufficient gas supply for domestic marketCONCLUSIONS

*THANK YOU

*Thank you Mr. Chairman. Distinguished Ladies and Gentlemen, It is a great honor for me to be here to day to give a short presentation about Indonesia Gas / LNG Development Policy on this APEC LNG Workshop.*This presentation will comprise of the role of natural gas in Indonesia, Indonesias gas reserves, Indonesias gas production and utilization, governments policy on natural gas, the future market development of Indonesia LNG, and conclusion.*Let me start with an overview of the role of natural gas for Indonesian Development. Natural gas has an important role in the national development as an sources of energy for domestic, feedstock to strategic industries, and the sources of governments income. The role of natural gas will even be higher in the future as the domestic gas demand grows and the oil role as the state income source for national development declines due to limited available reserves.*As shown on the figure, that the location of gas reserves are widespread throughout Indonesia and major gas reserves are located far from central market or gas consumers, like Java island, which has limited gas reserves. The main problem to utilize natural gas is that the infrastructure to connect reserves and consumers has not been integrated yet.Since the beginning of the national development, exploration and production of gas have also been intensified, not only to enhance export of LNG, but also to fulfill the domestic demand.*Looking at the indonesia gas reserves from year 1984 up to 2003, the figure shows that Indonesias gas reserves to day stand at 178 TSCF compare with 10 years ago of about 115 TSCF. So we see a situation in which Indonesias gas reserve are continuing to increase despite the high level of gas production in the country. Exploration is taking place in Indonesia in many prospective areas, and has resulted in substantial new discoveries in locations like East Kalimantan, West Papua, Central Sumatera and Sulawesi.*Allow me to inform you Indonesia Gas Production and Utilization in year 2003. Indonesia gas production is currently running at rate about 3.1 TSCF per year or about 8.42 BSCFD, with gas for export 57 % and remaining or 43 % for domestic purpose including for own use. Gas for LNG export absorbing about 53.6 %, LPG export 0.2 % and exporting gas through pipeline to Singapore and Malaysia about 3.8 %* Currently gas utilization for domestic increasing from 896.4 BSCF (2,455 MMSCFD) in year 1993 to 1,163.4 BSCF (3,187 MMSCFD). In years to comes gas utilization for domestic will increase continuously due to grow high demand especially in Java. In year 2020 gas utilization for domestic can be estimated about 1,606 BSCF (4,400 MMSCFD). As a mandate given by New Oil and Gas Law (Law No. 22 year 2001) that Government gives priority to the utilization of natural gas for domestic needs, to realize this matter Government plan to build an integrated gas transmission and distribution network which will connect multi gas producers with multi gas consumers. The master plan for this infrastructure now is being prepared by the Government. *Recently Indonesia has two existing LNG plants. The first is Arun LNG plant, started its operation 1977. Arun LNG plant consists of six trains, with the total capacity 12,85 metric ton per year. The second is Bontang LNG plant. Start to operate in 1977, the existing capacity of its eight trains is 21,64 metric ton per year. Bontang Plant is being expanded to 9 trains with the construction of Train I.Besides the two existing plants, Indonesia now also develop the third plant, in Tangguh, Papua. The plant is under construction, with the capacity of 7 mtpa.*This slide shows you the capacity of each trains in Indonesias LNG plant in Arun and Bontang. The capacity of the LNG plant in Bontang (East Kalimantan) can be increased in line with the new gas reserve discoveries. In the same manner, the LNG plant in Arun (Aceh) is also expected can be maintained in order to satisfy the market for an extended period of time, if the gas could be supplied from nearby discoveries including the possible supply from Natuna.The gas reserve in Irian Jaya (Tangguh LNG Project) is expected to be able to be used for the development of the third location of LNG plant in Indonesia.*Indonesia begins to export LNG in 1977 in line with the operation of its LNG plant. The export was to Japan. While export to Korea started at 1986, and Taiwan in 1990. Recently the total LNG exported to those countries is about 17.8 million tons.* Indonesia is able to continue supplying LNG for many years to come, we still have a quite big uncommitted gas reserve in Kalimantan, and gas reserve are now being developed at Tangguh field for LNG export. The Natuna field also offer strong hope that the LNG industry will remain a mainstay of the Indonesia economy for decades. Beside to our traditional market, in the future Indonesia also will supply LNG to China with the contract 2.6 MTPA and to Sempra US West Coast with the contract 3.7 MTPA. The contracts will be started in year 2008. *Indonesias existing LNG contract can be seen in this slide. The table shows that Arun Plant produces LNG for Japan and Korea market, while Badak Plant supplies LNG to Japan, Taiwan, and Korea market. Beside the existing contract, Indonesia has future contract to China and US West Coast, that are supplied by LNG from Indonesias new LNG plant in Tangguh.*Due to this condition, pipeline transmission system and integrated gas distribution are needed, which are very limited at this time. To construct pipeline transmission system, capital intensive investment will be required, while the Government fund is limited. Therefore the Government is trying to attract investors is willing to build infrastructures if a reasonable return is available.*To develop natural gas utilization in Indonesia, Indonesia has grand strategies : to guarantee the sustainability of gas supply and development of its infrastructure, to expand current gas pipeline transmission and distribution networks in a schedule step wise manner, and to utilize gas reserve at certain location optimally, by taking into account factor such as the size, availability and location of the reserve, gas demand, required infrastructure and technical and economical feasibility.*To optimize the utilization of natural gas, Indonesia has some strategic steps, such as : to create a conducive investment climate to guarantee the sustainability of gas supply and develompment of its infrastructure. This has been realized by minister of energy and mineral resources by providing a more attractive fiscal incentives. The next step is to expand transmission pipeline system and distribution of natural gas that their development are conducted gradually and in line with schedule, and the last is to optimize the utilization of natural gas reserve existing in a certain area by considering the availability of the reserves, market demand, required gas infrastructure, technical feasibility and economic aspects.*Indonesias gas policy platform in domestic sector is aimed to roll back petroleum fuel subsidy, to increase role of gas in the energy mix, and to increase added value of gas. While gas policy for export is by developing new LNG centres and implementing Trans ASEAN Gas Pipeline. To implement this platform, Indonesia has some strategic steps such implementing natural gas as alternative fuel for vehicle in form of CNG and LPG, developing Gas To Liquid Technology such as methanol and dimethyl ether for alternative source of energy, natural gas as energy source for power generation, city gas, and petrochemical industry, and incentive policy for gas producer to increase exploration and development of frontier area and marginal fields.*Distinguished ladies and gentlemen,

For all above mentioned, the Government of Indonesia has establish the Government Basic Policy in the development of natural gas in indonesia are as follows (READ THE SLIDE).

*There are some issues on Natural Gas development in Indonesia, such as domestic vs export issue, development of LNG business, role of gas in the energy mix, shifting paradigm for large gas reserves, the location of gas reserves from demand center (geographical issues), pricing mechanism and policy, gas infrastructure, Indonesian integrated gas pipeline system, and Trans ASEAN Gas Pipeline.*Ladies and gentlemen,Allow me to explain the market development of Indonesias LNG. READ THE SLIDE