Medco plans to expand gas sales, seeks retail partner: Report
Monday, March 11 2002 - 09:07 AM WIB
Medco is talking to PTT and rivals about distributing and selling fuel in Indonesia after the government opens the market in 2003, Chief Executive Hilmi Panigoro said. The plan, and a possible tie-up with Pertamina to liquefy natural gas, are part of the company's efforts to reduce dependence on crude oil, which makes up nine-tenths of its production, he said.
?If you look at where people are making money, it's not in refineries and petrochemical plants, it's in the distribution and retailing of product? and in oil and gas production can be pretty profitable if you get in early?, David Rubin, regional oil and gas analyst with PT Nomura Indonesia. Retailing fuel, was quoted as saying by the wired.
Indonesia is breaking up Pertamina's distribution monopoly and ending its control over oil and gas production contracts in an effort to stem a decline in investment in the industry and boost revenue. It promised to cut subsidies that make fuel prices among the cheapest in the world in order to gain loans from the International Monetary Fund.
Medco intends to use the opportunity to broaden its business, Hilmi said. The company's shares rose as much as 25 rupiah, or 1.7 percent, to 1,475.
PTT, Thailand's largest oil company, owns more than 1,400 gas stations and Medco wants to tap that experience to build a downstream business in Indonesia, he said.
?We will need a partner,? Hilmi said. ?We've talked to several companies. So far we don't have any concrete plan.? He wouldn't name the other companies.
Offshore Refining
Refineries in Thailand are able to process more oil than the country uses, making it attractive for companies such as PTT to use excess capacity to process oil for other markets. Indonesia has a refining deficit.
Medco is already linked to the Thai company in its production business. PTT's 61 percent owned unit PTT Exploration & Production Pcl, Thailand's second-largest gas producer, has 40 percent of holding company New Links Energy Resources, which in turn owns 85 percent of Medco.
PTTEP, in an e-mailed response to a phone call, declined to comment on any talks between Medco and its parent.
Indonesia ended subsidies for gasoline Jan. 17 and reduced subsidies for diesel and kerosene by half, to one quarter of international prices. Pertamina has four years to wean itself off subsidies.
Medco also wants to reduce its dependence on oil by exploiting a gas discovery off the island of Sulawesi. While it pumps about 92,000 barrels of crude oil a day, its daily gas output is equal to only about 8,000 barrels.
Gas Plant
The company found 3 trillion cubic feet of gas off Sulawesi and a new well may raise its reserves to 5 trillion, Hilmi said. That would be enough to build a processing plant in cooperation with Pertamina, which has 2 trillion to 3 trillion feet of gas in the area, so the fuel could be shipped to China, Korea and the U.S., he said.
``I think we might aim at 7 trillion cubic feet,'' Hilmi said. ``Then we can start talking about exporting gas.''
Together, the two would have enough gas reserves off Sulawesi to supply a 5 million metric ton a year liquefied natural gas plant for more than 25 years.
Medco has had talks with El Paso Corp. on buying LNG for an import terminal the U.S. company plans to build to supply the fuel to markets on the U.S. West coast, he said.
El Paso, the biggest U.S. gas pipeline owner, said in January it signed an initial agreement with Pertamina to buy LNG.
Other Options
Competition among LNG suppliers means Medco is also looking at other options.
Indonesia, with 72.3 trillion cubic feet of gas, has the second-largest reserves in Asia, much of it in remote areas that have little or no domestic market. Until recently, when companies such as Gulf Indonesia Resources Ltd. and Conoco Inc. began piping gas to Singapore, the country's main export strategy was to ship it Taiwan, Korea and Japan as LNG.
``LNG is only one way,'' Hilmi said. The company is talking to Canadian nickel miner Inco Ltd. about replacing oil with gas at a power plant for its nickel mine on Sulawesi and has talked to petrochemical companies about building gas-fed chemical plants on the island, he said.
Medco is considering using Royal Dutch/Shell Group's gas-to- liquids technology that turns gas into diesel and kerosene for use as transport fuels, he said.
Medco is trying to prove enough reserves on Sumatra island for it to participate in sales to Malaysia and Singapore.
The company's capital spending budget for this year is at least 10 percent higher than last year at $100 million, Hilmi said. About $40 million of that will be spent on new exploration, he said.
Exploration and production account for 81 percent of Medco's sales. Its drilling unit accounts for 10 percent, and a methanol production and marketing unit accounts for 7 percent. (*)