BP Kangean to sign new deal with Pertamina

British American oil and gas firm BP Indonesia said it had agreed to prematurely end its gas supply concession in East Java, and expected its unit BP Kangean Ltd to sign a new contract with state-owned oil and gas firm Pertamina next week.

"We expect to complete negotiations next week," BP Indonesia vice president for government and public affairs Satya W. Yudha said on Friday as quoted by The Jakarta Post.

BP Kangean holds a concession to supply some 600 million cubic feet per day (mmscfd) of gas to East Java until 2010. Under the contract, signed in 1980, no other suppliers can enter the provincial market unless demand exceeds the 600 mmscfd level.

But as the company's gas reserves in the Pagerungan field have been declining, BP Kangean could not meet the growing gas demand in the province, thus creating a potential gas shortage problem. The gas customers are huge companies like state-owned electricity company PLN, which has started to purchase industrial diesel fuel as a substitute for gas.

This has forced the government to renegotiate the original contract, to allow other suppliers to enter the market.

Although the original concession is still valid, other gas suppliers have actually been allowed to enter the East Java market supplying a limited volume of gas. They are Lapindo Brantas and Kodeco Energy Co.

Under the new contract currently being negotiated, BP Kangean's gas supply this year would be limited to 228 mmscfd and down to 146 mmscfd next year, Dharma I. Jenie, a BP Kangean official, said.

Meanwhile, Satya said that with BP now ready to terminate the East Java gas concession, the company expected the government to extend BP's operation contract in the Terang Sirasun gas field, which is to expire in 2010.

The Terang Sirasun field will also supply gas to the East Java market. (*)