INTERVIEW: PLN outlines primary energy strategy

The following are excerpts of the interview given by Nur Pamudji, energy primary director of state owned electricity PT Perusahaan Listrik Negara (PLN) to Petromindo.com?s reporter Bernard Lubis. The interview took place earlier this month.

Question: What?s PT PLN?s primary energy provision strategy?

Answer: Primary energies that I handle are gas, coal and oil-based fuel. As far as gas is concerned, PLN has been given a privilege by BPMIGAS.

Does PLN have a privilege?

It does. Privileges (of using gas) have been given to fertilizer industry, oil lifting activities, electricity generation. For instance, if there are new gas sources that have been discovered, PLN is usually given the opportunity to buy through a simple procedure through direct appointment. The process can be quick. We only need to negotiate. Still, there is a wide gap between supply and demand. We need 2,300 mmcfd. I will give later the figures. But, the demand has never been fulfilled. PLN, for instance, can use gas but is forced to use HSD (high speed diesel) for the Tambak Lorok power plant in Semarang. This is because there aren?t yet supplies from Kepodang field. The same thing happens to our power plants in Gresik, Muara Tawar, Tanjung Priok, Muara Karang and Belawan. There aren?t enough gas supplies. These are several examples of power plants that should have used gas rather than HSD. We finally try unconventional ways in finding gas sources outside gas pipelines.

Could you given an illustration of costs of burning oil-based fuels and burning gas at combined cycle power plants, and how much do they cost?

HSD burning costs us US$16-17 per mmbtu, while the cost of gas is $3, 4 or 5 per mmbtu.

So, the cost (of burning HSD) is three times as much?

Yes, around three times.

In terms of production costs per kWh, how?s the difference?

If they use gas, the production cost varies depending on the location of the power plants, but they are less than Rp 400 per kWh. Among the cheapest ones is the Cilegon power plant. Its production cost is Rp 300 per kWh. Meanwhile, the highest production cost of the power plants that use HSD is one third of the price of the fuel. If the price of HSD is now Rp 5,300 per liter, the production cost of the power plant using the fuel is about Rp 1,700 per kWh.

So costly!

It is

So, how much does PLN squander for HSD?

(Laughing) It can be seen in the PLN?s budget for HSD every year. That is why we have been trying to find new sources, such LNG terminal. Initially, we were asked last year by the government, in a partnership with (state owned oil and gas firm) PT Pertamina and (state owned gas distribution firm) PT PGN, to develop an LNG receiving terminal in Jakarta. Over time, we drew back, leaving Pertamina and PGN (to continue the project).

What are the reasons behind the withdrawal?

Just in order to make the procedure simple. If there are three parties, the legal procedure will become more complicated. For instance, (in case the partnership consists of three parties and) if you want to buy furniture for the office, you need signatures from the three parties. This is only about office furniture. It will turn more complicated when it comes to other matters.

What kind of agreement had the consortium of PLN, PGN and Pertamina signed?

Nothing. (Before PLN decided to withdraw from the consortium) we had only made preparations for a negotiation scheduled to be held end of February.

How much gas does PLN plan to buy from the LNG terminals?

From (the LNG terminal planned to be built by PGN and Pertamina in) Jakarta, 400 mmcfd, (from the terminal to be built by PGN in) Belawan 150 mmcfd. With regards volume from (the LNG terminal to be built by Pertamina in) East Java, we are now having talks with Pertamin about the optimal volume

So, how long will it take for PLN to finish the conversion program from oil-based fuels to gas?

The target is that gas from the LNG receiving terminals will flow in by September 2012, either from Belawan and Jakarta. That does not mean the problem is over because, for instance, there isn?t yet any solution regarding gas supplies to the Tambak Lorok power plant. With regards gas from the Kepodang field of Petronas, it is not clear yet who will build the pipeline to transmit the gas. Will it be built by Petronas or will it become part of the Kalimantan-Central Java pipeline? We are waiting for the government to make a decision.

How much does Kepodang gas cost?

Less than $5 per mmbtu.

How about the prices of other gas for PLN? Other parties will likely use the buying price of PLN from the LNG receiving terminals as reference.

It depends on the sources of the gas. If it is sourced from the domestic market, the government may reportedly regulate the prices, because the gas belongs to (oil and gas upstream sector regulator) BPMIGAS. If it is sourced from outside the country or imported, we shall be exposed to international prices. We still have a lot of domestic gas, for instance Matindo, Masela, IDD.

The problem is that they (the gas producers or distributors) are reluctant to sell their gas on the domestic market because their prices are expensive given the fact that the gas is sourced from deep water or from LNG floating terminals. They say the domestic price, for instance $5, is not economical. PLN is long known to be only willing to buy cheap gas. What would PLN do rather than burning HSD?

We have to have a long-term perspective, 10 years. We also have other primary energy sources. Coal, for instance. It competes with gas. We shall optimize the efforts of finding the list of cost system development. If we want to add the capacity by several thousands of MW for several years to come, what is the most optimal fuel? Coal or gas? Of course, it is not only gas or only coal. Both can be developed. How much gas or coal we are going to use? In fact, we have a lot of coal. But, we can?t neglect gas because in our electricity system, there are power plants which operate as ? using our terminology ? mid-level load carrier and peak load carrier, for which the best fuel is gas. This is because gas-fired power plants can quickly increase and decrease their capacity. Furthermore, in order to control of the quality, that is the per-second frequency, 50 frequencies per second, it?s better to use gas-fired power plants because they can quickly balance the demand and supply. That is we still need gas-fired power plants in our electricity system.

Is it also the reason that the new power plant development plans still include energy mix?

It is. It has been indicated in the RUPTL (The Plans of Electricity Provision Efforts proposed by PLN) which is in the process of gaining approval from the government. (The RUPTL) makes clear the planned development of coal, pipelined gas, LNG-fired power plants. All (of the fuel) has a place (in the RUPTL). We realize that pipelined gas is limited in amount. That?s why we include LNG into the 10-year plan.

In 10 years to come, what is the percentage of LNG (in PLN?s use of fuels?

I?ll show you the data.

Does PLN still pursue the program of converting to MFO (marine fuel oil) from HSD?

The program was triggered by the big difference between the prices of HSD and MFO. HSD used to cost Rp 5,000 something while MFO cost Rp 3,000 something. But now the MFO price has increased to a level almost comparable to the HSD price. We are evaluating the MFO-HSD conversion program. Our pilot project is the diesel-fired Matarm power plant in Lombok. Is it more profitable using MFO? It has turned out that the use of MFO results in an increase in maintenance costs. We shall audit the additional maintenance costs as a result of the use of MFO rather than HSD.

What?s more important is the conversion of the use of HSD into gas, which is in this respect the compressed natural gas (CNG) or Mini LNG. For instance, PLN has gas on the islands of Java, Sumatra and Kalimantan. We then tap some of the gas and carry them to Ambon, Kupang, Kendari or Mataram where the use of HSD is high. We plan to start the program in 2012.

How do you convert the machines?

It is easy to convert the machines. It is as easy as converting HSD to gas. The fuel system is very simple. And we have made it for the use of pipelined gas in several places, for instance Teluk Lembu in Payo Selincah and Belawan.

What is more difficult to do is the application of CNG or Mini LNG technology. We are still in the process of learning this. This is a new technology.

Who are you cooperating with?

There are some companies who have the technology. We have assigned our subsidiary PT Indonesia Power to examine which technology is the most economical to be applied, CNG or Mini LNG? First of all, the technology will be applied at the gas-turbine PLTG Pemoran in Singaraja, Bali. The procurement process is in progress. Our target is that the project will run in 2011. The idea is that we shall carry gas that belongs to us from the island of Java. The volume is only 20 mmcfd. The gas will be in the form of CNG or Mini LNG.

Are there already vendors of the technology?

There have been several proposals sent to PLN. We shall hold a tender. It would be better.

So PLN will need only to wait for the arrival of the LNG?

Yes, we will. (end)