The Tangguh LNG Project

Sjahrial Daud, PERTAMINA, Indonesia Summary

This paper addresses the Tangguh LNG project, Indonesias new LNG export centre. To place the Tangguh LNG project in context, Indonesias position as the worlds largest LNG exporter is briefly described. The paper then explains how the Tangguh LNG project will enable Indonesia to maintain and expand the level of its LNG exports in the decades ahead. This in turn supports the policies of both the Indonesia government and of the provincial government in Irian Jaya, while supplying clean energy on a competitive basis to LNG importing countries in the Asia-Pacific region.

Indonesian LNG and gas exports

Indonesia commenced LNG exports to Japan from Bontang in 1977 and from Arun in 1978. Over the next 20 years the export capacity of both plants was increased progressively to achieve a combined export capacity of over 30 mtpa by 2000. In 1986 and 1990 Indonesia became the first LNG supplier to Korea and to Taiwan respectively, and Indonesia is the largest single supplier of LNG to each of Japan, Korea and Taiwan. The evolution of Indonesias LNG sales is shown in Figure 1.

Indonesia LNG Sales and Market Share

LNG Sales
MTPA

Taiwan Korea Japan

30

25

20

Asia Pacific Market Share Oman(in 2000) 2% Australia Abu 10% Brunei Dhabi 9% 6% USA Qatar 2% 13%

15

10

Malaysia 21%

Indonesia 37%

77

79 81 83

5 85 87 89 91

93

95 97 99

Yr. 2000

Figure 1 Indonesia LNG Sales & Market Share

Today the Bontang LNG plant in East Kalimantan has a capacity of 22 mtpa, and there are sufficient proven reserves to maintain that level of exports well into the 3rd decade of this century. The gas reserves supplying the Arun LNG plant in North Sumatra are however depleting, which makes it timely to develop Indonesias 3rd LNG export centre at Tangguh. Physically, Indonesias 3 export centres are well separated, as shown in Figure 2. The Tangguh LNG project is located in the western part of Irian Jaya province (also known as West Papua), which lies in the eastern part of Indonesian.

Indonesian LNG Centres

Arun LNG Plant Bontang LNG Plant Tangguh LNG Plant Site

Sumatera Kalimantan Sulawesi

Irian Jaya

Jakarta
Java

Surabaya

5000 km

Figure 2 Indonesian LNG Centres Also of note, Indonesia has recently commenced natural gas supplies to Singapore and Malaysia under long-term pipeline gas supply contracts from the West Natuna offshore gas province, and has signed a second such supply contract with Singapore based on gas from South Sumatra. Indonesia will thus become Singapores main supplier of natural gas, primarily for power generation. In addition to the significant role which natural gas plays in supplying Indonesias domestic fuel market (notably in West and East Java), Indonesia is therefore contributing very substantially to the supply of clean natural gas to the Asia-Pacific region, mainly in the form of LNG but also by pipeline. The commissioning of the Tangguh LNG project will enable Indonesia to maintain and expand its LNG exports over the coming decades.

Tangguh Gas Reserves

The giant Wiriagar Deep gas field was first discovered in 1994. This led to an intensive exploration campaign in the following years and in total 26 exploration and appraisal wells were drilled (Figure 3).

Tangguh Exploration and Appraisal History

1994 1995
RIGS WD - 1 SABINA-1 SUHANAH-1 WD - 6 WD -7 WD - 8

1996

1997

1998

A S OND J FMAM J J A S OND J FMAM J J A S OND J FMAM J J A S OND J FMAM J J A S OND WIRIAGAR PSC BERAU PSC

1990-92 RB-1 OF-1 WS-1 SANTA FE 134 MEDCO RIG 4 U-1 V - 6 U-2 DEEP SEA ICE WD-2 WD-4 WD - 3 WD - 5 V-1 V-2 V-3 V-4 V-5 V-7

NAM-1 SAK-1 V- 9 V-10 V-11 V- 8

MUTURI PSC

SEAREX 8 FALCON DUCHESS TRIDENT 19 NORTHERN EXPLORER II FALCON ICE

SEISMIC

WIRIAGAR DEEP LAND & TRANSITION 3-D MARINE 3-D V - WD - K UBADARI 2D

PROCESSING INITIAL FINAL

CERTIFICATION

DEC-1996

JUN-1997

JUL-1998

Figure 3 - Tangguh Exploration and Appraisal History This campaign was extremely successful, and the independent certification of reserves in mid-1998 confirmed 14.4 tcf of proven gas reserves and 3.9 tcf of probable reserves. These reserves are located in three adjacent Production Sharing Contract (PSC) areas, namely Berau, Muturi and Wiriagar (see Figure 6).

Tangguh Reserve Grow th

25

Reserves (TC F)

20 15 10 5 0

Possible Probable Proven

Dec. 1996

June 1997

July 1998

* - Estim ates by DeGolyer & MacNaughton, Proven and Probable Certified.

Figure 4 - Tangguh Reserve Growth Some 90% of these reserves lie in just two fields, Vorwata and Wiriagar Deep, whose main reservoirs are in high quality Jurassic sandstone. Both fields are located in the shallow and protected waters of Berau Bay, within 30 km of the liquefaction plant site. These favourable factors will facilitate fast and cost-effective implementation of production facilities, and subsequent safe, continuous gas production.

Field Locator Map

Western Irian Jaya
AYOT-2

Muturi PSC
Wiriagar PSC
(BP)
i

SEBYAR-1

(BG)
Saka uni-1 V-4 V-3 V-6 V-2 V-5 V-8 V-9 V-11 V-9 V-10

WD-1 W D-8 WD-7 D-7 WD-6 WD-3 WD-2 Nambumbi-1 Vorwata-1 -7 V-7 Roabiba-1

WD-5

WD-4

Berau PSC
(BP)

KALITAMI-1

Wiriagar Deep
Ofaweri-1

Roabiba
LNG Plant Location

Vorwata

Ofaweri
Wos-1

Ubadari
Ubadari-1 Ubadari-2

Wos Babo PSC

0
25 km

(BP)

Figure 5 - Field Locator Map In addition, the Tangguh gas province remains under-explored and contains exciting potential for further discoveries. While additional intensive exploration awaits market demand, initial exploration of three adjacent PSC areas just to the south of the plant site (Babo, West Arguni and East Arguni) is already planned.

Tangguh - PSC Areas

130 132 134
.

PSC boundaries as of July 1, 1998

WESTERN IRIAN JAYA

MUTURI
BG BP Cairns LNG NIC Japan 50% 45% 5%

WIRIAGAR
BP KG 80% 20%

2 i

Berau Bay
B AB O

BERAU
BP KG NIPPON MITSUBISHI OXY 48.00% 12.00% 17.14% 22.86%

BABO (BP)

WEST ARGUNI (BP)

EAST ARGUNI (BP)

S OU T H C HI N A SE A P AC IF IC OCEAN
S U
KA L I M AN T A N
A R T

M A T R A

SU

W LA

I ES

IR I A N J A YA

IN

100 Km.

IA

NO

INDONESIA
C E A
J A W A

Figure 6 - Tangguh PSC Areas

Export Market Strategy for Tangguh LNG

The Tangguh LNG project is well located in relation to the main Asia-Pacific LNG markets. The voyage time to Japan, Korea and South China is 6 days or less, and to Taiwan and the Philippines is even shorter. These are all therefore the natural export markets for Tangguh LNG. In addition, Tangguh is better placed than most Asia-Pacific LNG projects to supply the US West Coast market once it commences to imports of LNG. Active discussions are underway for supply of Tangguh LNG to several of these markets, aimed at commencing supplies from late 2005.

Tangguh Shipping Distances

SOUTH KOREA JAPAN

CHINA

INDIA

PACIFIC OCEAN TAIWAN

Market G uangdong Japan Korea Taiwan US WC

Distance (n.m.) 2140 2300 INDIAN OCEAN 2200 1600 6700

BRUNEI MALAYSIA

TANGGUH

INDONESIA

AUSTRALIA

Figure 7 Tangguh Shipping Distances Based on its excellent competitive position, Tangguh LNG will offer attractive commercial packages tailored to customers specific needs.

Domestic market for Tangguh LNG

Tangguh LNG benefits from having the additional opportunity of supplying LNG to the domestic gas market in Java. Currently both West Java (including Jakarta) and East Java (including Surabaya) consume substantial supplies of pipeline natural gas. However the local gas reserves supplying those markets are relatively small and gas consumption is already supply constrained. Moreover substantial quantities of diesel much of it imported - are currently used for power generation and for industrial use in Java. In West Java alone, imported diesel used for power generation and industrial use currently amounts to over 3.5 mtpa of LNG equivalent. Figure 8 illustrates the need for additional gas supply to West Java in future.

West Java Gas Balance

4000 3500 3000 2500 mmcfd 2000 1500 1000 500 0 2001 2003 2005 2007 2009 Year 2011 2013 2015
Power Res/Com Potential LNG

Possible Supply by pipeline Diesel

Existing
SUPPLY DEMAND

Industry

Figure 8 West Java Gas Balance

Tangguh LNG supplies could both replace diesel and also supply the additional combinedcycle power generation capacity which is forecast to be required in the near future. If sold at parity with the cost of imported diesel, such domestic sale of LNG can be economic (including terminalling cost). However the Indonesia government will be much better off, because of its substantial share of the profit from Tangguh LNG sales under production sharing arrangements.

Project Implementation
The Tangguh LNG project is already geared for fast-track implementation. A double FEED process for the liquefaction plant has been completed, based on which the bidding process for the main EPC is underway and certain long-delivery items have been ordered. The intention is to construct 2 x 3.5 mtpa liquefaction trains initially, though the project economics also permit construction of a single train. The plant layout is planned eventually to accommodate up to 6 liquefaction trains.

Figure 8 - Graphical portayal of the initial Tangguh LNG Liquefaction Plant

Tangguh LNG supports government policy

Eastern Indonesia, including Irian Jaya province, remains under-developed and it is an important element of both central government and provincial government policy to encourage economic development. The Tangguh LNG project, being large, clean and profitable therefore fits very well with the government objectives for Irian Jaya. Furthermore, under the policy of regional autonomy now being implemented, a significant part of the governments revenues from Production Sharing will accrue to local government authorities in Irian Jaya. These revenues will enable them to invest in local infrastructure including education, health and roads for which under regional autonomy they will take on increased responsibility. The Tangguh LNG project will be developed with the full participation and support of the local communities and authorities in Papua. For these reasons the Tangguh LNG project is a national priority project.