Strong growth in Indonesia’s domestic demand means all gas from Conrad’s Mako field will be made available into Batam through purchases from state owned utility Persero. Pic: Getty Images
Energy
Special Report: Conrad Asia Energy has received a boost from an Indonesian Ministry of Energy and Mineral Resources’ (MEMR) directive that all gas from its Mako field be made available for domestic use due to very strong growth in demand.
While the MEMR has revoked an earlier allocation and pricing directive to sell Mako gas to PT Perusahaan Gas Negara and Singapore’s Sembcorp Gas, terminating gas sales agreements, it is a clear sign Indonesia is in the market for new sources of domestic gas.
As such, Conrad Asia Energy (ASX:CRD) can be assured it will have a ready market for any domestic gas from Mako or its other flow-tested discoveries in Indonesia.
To meet the MEMR directive that all gas produced from Mako within Conrad’s 76.5%-owned Duyung production sharing contract in the West Natuna Sea be available for the domestic market in Batam, the company is working to finalise a gas sales agreement with PT Perusahaan Listrik Negara (Persero).
Persero is Indonesia’s state-owned electric utility company that operates more than 7000 power plants which generate over 288,000 gigawatt hours of electricity annually for over 89 million customers.
Importantly for Conrad, Mako gas pricing will be linked to the Indonesian Crude Price, which is akin to Brent oil-linked liquefied natural gas pricing.
This structure will be economically equivalent to the pricing previously approved for Mako gas to be sold domestically and for export, which means Conrad will continue to receive very strong value for the gas.
To top it off, the MEMR is understood to have directed PLN to build the required ~7km spurline worth about US$50m to link the Natuna Transportation System with Pemping Island and subsequently to markets in Batam.
The Mako gas field has best estimate (2C) contingent gas resources of 376 billion cubic feet – a figure that can be quickly converted into proved and probable reserves once final gas sales agreements are signed. The field is located in the West Natuna Sea, which has been supplying Singapore with natural gas for more than two decades.
As such, the field can be brought into production quickly by leveraging the existing West Natuna Sea infrastructure.
Mako is expected to produce gas at a plateau rate of about 111 billion British Thermal Units per day (111 million cubic feet per day).
“The approval of the new price and allocation for the GSA between the Mako joint venture, the Indonesian Government and PLN is a significant event,” managing director and CEO Miltos Xynogalas said.
“It has taken considerable time and effort to reach this important milestone and we can now move forward with greater confidence in all our projects.
“Oil-linked prices for pipeline gas contracts in Indonesia have been uncommon. Approval of such a structure for Mako demonstrates the willingness of the Government of Indonesia to secure gas for local consumption whilst ensuring that the producer is not economically disadvantaged.
“The PLN GSA underpins the financial viability and the value of the project and aligns with Indonesia’s new energy priorities.”
He added that Mako was expected to be the first of several gas projects that it aimed to bring into commercial production from its portfolio of gas discoveries – including Aceh gas resources.
The move from coal to gas by Indonesia – the fourth most populous country in the world and one of the fastest growing economies – is expected to result in strong demand, underpinning the value of Conrad’s discovered resources and highlighting the importance of Mako and its other gas resources.
“The Government recently announced the roll-out of a US$1.5 billion project to distribute liquefied natural gas on a small scale to feed dozens of power plants now running on diesel via a unique hub-and-spoke model across Indonesia’s vast archipelago,” added Xynogalas.
“This has potential implications for Conrad’s discovered resources in offshore Aceh and for its previously announced small-scale LNG collaboration with PGN4.”
He added that while the ongoing revision in Indonesia’s energy priorities had impacted the timing of Mako, it was more than offset by the positive value driver across its portfolio.
“Conrad is now in a much stronger position to attract partners into all our projects and this now gives us broader financing options from domestic sources,” Xynogalas confirmed.
The new Indonesian Government, which came to power in October 2024, is formulating its New Energy Plan 2024-2034 that will prioritise gas exploration and production to meet rapidly rising domestic energy demand.
About 15 gigawatts of new gas-powered capacity is planned to be built around Indonesia until 2034 to support base load capacity.
This article was developed in collaboration with Conrad Asia Energy, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
