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Source: Reuters

INTERVIEW-Indonesia Ephindo plans 2011 coalbed methane sales

Published: 20 Aug 2009 17:10:33 PST

* Indonesia's Ephindo to drill seven coal-bed methane wells

* Aims to commercialise gas production by 2011

SINGAPORE, Aug 20 - Indonesian company Ephindo and its partners will begin gas sales from their coal bed methane (CBM) blocks in 2011, marking a first step in exploiting the country's huge resources of the fuel, its chief executive said.

Initially they would drill seven CBM wells this year and next, Sammy Hamzah told Reuters in an interview on Thursday.

Ephindo, formed in 2005, aims to generate revenues from the three CBM blocks in Kutai and Sangatta in East Kalimantan, as well as in Sekayu in South Sumatra, within a couple of years, he added.

"The drilling of the 7-well programme will start this year and will be carried over to 2010," Hamzah said, adding that spending on the process would be more than $10 million.

"The first commercialisation of the gas will be in the second half of 2011."

CBM is natural gas trapped in seams of coal, and studies show Indonesia has massive resources, mostly in South Sumatra.

It is increasingly valued as a feedstock for plants producing liquefied natural gas (LNG) -- gas that is super-chilled to liquid form largely for export in specially designed tankers.

"The Bontang LNG plant is a prospective market. But we need to seek government approval because of domestic market obligations," said Hamzah on the sidelines of a CBM conference in Singapore.

Bontang, one of the LNG plants in the world, has eight trains, or production facilities, and a capacity of 22 million tonnes a year (tpy), but output has declined due to a lack of available natural gas.

Ephindo and PT Medco Energy International Tbk, have an equal stake in the Sekayu Block in south Sumatra, estimated to have 183 trillion cubic feet (tcf) of CBM resources.

Ephindo has a 45 percent stake in the Kutai West Block while fellow Indonesian company Tanito has the rest.

In the Sangatta Block, Ephindo and Australia's Arrow Energy , which is heavily involved in coal seam gas projects, hold a joint 48 percent stake and state oil company Pertamina the remainder.

East Kalimantan is estimated to have 80.4 tcf of CBM resources.

"The CBM potential in South Sumatra and East Kalimantan is significant," Hamzah said.

EFFORT TO CURB COSTLY OIL IMPORTS

The resource-rich Southeast Asian country is pinning energy hopes on developing CBM, as part of a strategy to rein in costly imports of oil products.

"The Indonesian government will be more responsive to investment community. There is room for improvement for Indonesia's CBM industry in terms of approval and processes," Hamzah said.

Despite being an oil producer for more than a century, Indonesia's growing fuel demand, depleting reservoirs and poor investment record turned it into a net importer in recent years.

Indonesia announced last year it was withdrawing from the Organization of the Petroleum Exporting Countries, which it joined in 1962, since falling oil output meant its influence had shrunk.

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