PT Arun Natural Gas Liquefaction – its Development throughout the history of Indonesian LNG Production
PT Arun Natural Gas Liquefaction, better known as PT Arun NGL, is the largest liquefied natural gas producer in Indonesia. In 1990, PT Arun was the largest LNG producer in the world. PT Arun is a subsidiary of Pertamina. Located in Lhokseumawe, North Aceh, Indonesia, the company has 6 processing units, but currently only 2 units are in operation due to the depletion of natural gas reserves there. PT Arun is one of the largest foreign exchange earners for the city of Lhokseumawe and Indonesia.
Arun’s production coupled with output from Bontang LNG (East Kalimantan) made Indonesia the world’s largest exporter of LNG for more than two decades, during which time LNG has been a major contributor to export earnings and government revenues. The LNG landscape lies in stark contrast to the potential of Indonesia’s oil trade, where crude exports continue enduring a steady decline while import of crude and petroleum products continue to rise.
Indonesia’s natural gas industry is in a much more lucrative position simply based on the fact that Indonesia does not import natural gas, while domestic industrial demand for the commodity is on the ascendancy. The value of Indonesia’s natural gas exports (mainly LNG from Arun and Bontang) over the last five years has ranged from US$9.1-$13.2 billion per year. Their annual contribution to the central government for the same period has ranged from Rp 31 to Rp 42 trillion ($ 3.48 — $4.72 billion).
History of Arun NGL
Since 1968, Mobil Oil sharing contracts with Pertamina to search for sources of oil in onshore and offshore. In 1969, Mobil Oil began to exert its search in Aceh with a primary focus in North Aceh. Drilling conducted near the village of Arun is the fifteenth time conducted by Mobil Oil. Since the first search in a location which indicate the source of energy to the point of the fourteenth drilling in new fields that are not known earlier, the company has found oil and gas with carbon dioxide content is too high making it difficult to develop.
Socony Oil Company, who once operated in Aceh has detected that there is a substantial amount of gas content. On that basis, the search for Mobil Oil, which is coordinated by Pertamina Unit I is concentrated in the village of Arun. Arun Village is a village in the district Syamtalira, North Aceh, whose name was later used as the name of this natural gas company.
October 24, 1971, natural gas that contained under the village Arun was found with estimated reserves stood at 17.1 trillion cubic feet. That day is day 73 since the test-led exploration of Bob Graves, chairman of Mobil Oil exploration in Aceh, begins.
In 1972 the source of natural gas fields offshore in the North Sumatra Offshore (NSO) was discovered, located in the Straits of Malacca at a distance of approximately 107.6 km from the refinery PT Arun in Blang Lancang.
Subsequently in 1998 the project development NSO “A” is carried out, covering units for gas processing facilities offshore and at PT Arun. This facility was built to process 450 MMSCFD of natural gas from offshore as additional raw material of natural gas from the Arun field in Lhoksukon that was diminished.
March 16, 1974, PT Arun was established as a corporate operator. The company is newly inaugurated by President Soeharto on 19 September 1978 after a successful first condensate exports to Japan (October 14, 1977).
Although Arun’s gas potential was discovered in 1971. There were several development options during the early Arun period. One proposal suggested sending Arun’s LNG to California. A second plan was to avoid investment in liquefaction facilities by constructing a transmission pipeline to feed Singaporean demand instead. A third prospect involved shipments of Arun LNG directly to Japan. The third option was finally selected. The first stage of the liquefaction plant cost about $ 1 billion. Arun sent its first LNG cargo to Japan in October 1978, followed by later supply contracts with South Korea and Taiwan.
Construction of Arun’s Train
Construction of 6 units of processing (train) liquefaction of natural gas at the Arun LNG plant through several stages, namely:
• Train 1, 2, and 3 (Arun Project 1) was built in early 1974 and completed in late 1978 by Bechtel Inc.
• Train 4 and 5 (Arun Project II) was built in February 1982 and completed in late 1983 which was done by Chiyoda
• Train 6 (Arun III Project) was built in November 1984 and completed in September 1986, which is done by the Japan Gas Corporation (JGC)
In February 1987, called Arun LPG Project was built and carried by the Japan Gas Corporation (JGC). Refinery was completed in 1989.
Arun’s Gas Fields
According to the electronic measurement data through the films taken in the field and analyzed at the central analysis of Mobil Oil in Dallas, United States, the Arun gas field located in the limestone layer at a depth of 10,000 feet (3048 meters). The content of gas stood at 17.1 trillion cubic feet with pressure 499 kg / cm, temperature 177 ° C, and thickness of 300 meters. The number is expected to be able to supply six units of processing kitchen (train) with their own capacity to 300 million SCFD (Standard Cubic Feet Day) for a period of 20 years. Gas fields consist of four (4) fruit cluster gas and condensate, and gas and condensate is sent to the collection unit at Point “A” which in turn sent to the Arun LNG plant using pipes:
• Gas use 42 inch diameter pipe.
• Condensate using 16 inch diameter pipe.
• LPG propane using 20-inch diameter pipe.
Arun LNG plant in Blang Lancang covers an area of 271 ha with a length of 1.7 km and 1.5 km wide and equipped with a special port carrier production. Arun LNG plant is equipped with 2 ports for delivery of LNG production to the purchaser, while for the delivery of the condensate is equipped with 2 means of loading, the Single Point Mooring (SPM) and Multi-Buoy Mooring (MBM). NSO’s natural gas fields contain H2S and CO2 are so high that the separation process is required prior to entry into the LNG trains. This work is done to reduce levels of H2S from 1.59% to 80 ppm and CO2 from 33.21% to 25.54 mol%, so in accordance with design specifications LNG trains.
President Director of PT Arun NGL based in Jakarta, which is currently held by Fauzi Husin. While Vice President based in Lhokseumawe and held by Fuad Bukhari. Vice President in charge of three divisions and three non-divisional level sections, namely:
1. Production Division
2. Field Support Division
3. Development and Services Division
4. Public Relations Section
5. Finance and Accounting Section
6. Public Audit Section
Shares of corporate ownership held by Pertamina (55%), Exxon Mobil (30%), and Japan Indonesia LNG Company (abbreviated JILCO; 15%).
The Arun LNG facility has been an important contributor to the positive balance of Indonesia’s national natural gas/LNG trade. Arun (Lhokseumawe, Nanggroe Aceh Darussalam) has made noticeable contributions to the national and local economy for more than three decades. Other gas-based industries developed around Arun, including two leading domestic fertilizer plants, AAF (Asean Aceh Fertilizer) and Iskandar Muda.
The multiplier effect on the local economy, including revenues to the local government, has been significant, particularly after fiscal rebalancing between central and local governments was implemented in the early 2000s.
The sad news is that the huge Arun LNG liquefaction plant (six train capacity with four operational trains currently producing 6.5 million tons per annum/MTPA) will terminate operations in 2014. The information was submitted by President Director of PT Arun NGL, Fauzi Husin now stay in touch with the management of the Veranda of Indonesia in Banda Aceh, on Saturday (27/11).
“Arun LNG contract will expire in 2014. (After that) although natural gas in some gas fields still remain, but are no longer economically used as LNG, “said Fauzi accompanied by the Corporate Secretary of Suparman T, Abdi B Head of Public Relations, and Corporate Social Responsibility Supervisor, Irwandar.
According to Fauzi, after 2014, if still there is supply of gas left but could no longer be used as LNG because of the pressure and the lower quality gas. Residual gas could only be used to manufacture fertilizer. Currently, he added, PT Arun operates in the minimum capacity, i.e., only 2 unit trains from the existing 6 unit train, with a total production of only 35 cargos (2 million tons of LNG). Arun even had manufactured 224 cargos (16.5 million tones of LNG), when the production peak in 1994.
He predicted that in 2011 PT Arun only able to produce 30 cargo of LNG, in 2012 as many as 24 cargo, in 2013 and 2014 respectively only 20 cargo of LNG. “All the rest of the production was to fulfill a contract with Korea and Japan,” he said. Fauzi explained, after the end of the operation of the company in 2014, PT Arun LNG plant still deserve to be receiving terminal (terminal gas). “Later on LNG from the outside to be brought to the Arun gas to meet domestic needs,” he said.
Since the operation of PT Arun NGL 1971, in North Aceh have appeared various gas-based industries, such as PT PIM, AAF, PT Humpuss Aromatic, and PT KKA that use natural gas as an energy source driving the refinery.
Arun is currently a joint venture company that only employs about 450 employees from 2600’s of employees before. Some employees of PT Arun has been early retirement and work in various overseas companies such as LNG in Abu Dhabi, Qatar, and Yemen. The composition of PT Arun NGL currently covers 55 percent owned by Pertamina, 30 percent owned by Mobil LNG Inc. (Exxon Mobil), and 15 percent owned by Japan’s association of gas buyers (Japan Indonesia LNG Company/JILCO).
Declining production from the current gas fields and expiration of major LNG sales contracts are the main reasons for scaling down the plant’s operations. Declining gas production has impacted some fertilizer plants, which have faced temporary shut downs because of deficient gas supply after the limited Arun supply was prioritized to feed long term contracts with overseas buyers.
Three years does not leave a comfortable time frame to build new infrastructure or prepare for a post industry transformation. Given the potential impacts, pre-2014 planning must comprehensively analyze the impact of Arun’s decline on the local economy.
The termination of Arun LNG plant operations is not only a shareholder concern (Exxon Mobil, Pertamina and Japanese buyers), but will also impact many other stakeholders. The industry’s benefit to the local economy, as well as its large influence on socio-political conditions, will hopefully invite attention from wider stakeholders, including the local and central government and the associated ministries (industry, energy, etc). They all need to share responsibility for Arun post-2014.
Indonesians still remember that Acehnese suffered mistreatment in the past, some of which was blamed on the management of the natural gas industry. Post-LNG Arun not only concerns matters of whether the current LNG liquefaction activities should be converted, for instance, to an LNG receiving terminal, but it also has to take political concerns into more serious account, particularly issues of fairness in the distribution of revenues and the accommodation of local interests. The current LNG liquefaction plant facilities are still in working condition, as are the other gas-based plants nearby (fertilizer, petrochemical, etc.).
Arun’s Options Post-2014
Several options might be proposed, but utilizing the existing facilities should be set as a top priority. Connecting the post-2014 strategy with other national projects should also be prioritized. The LNG storage, power generators and other gas-based industries in Aceh might continue to operate if gas supply is secured. Constructing a new LNG receiving terminal at the current Arun LNG location to facilitate the import of LNG from other liquefaction plants in Indonesia (Tangguh, Donggi-Senoro or Bontang) could be a possible solution to the gas supply problem. The other large storage facilities (LPG, condensate) can be used as transit terminals to address local LPG demand, or if necessary, for storage of CPO (crude palm oil) from plantations in northern Sumatra.
Electricity (which could be supplied from power generators available at the gas industry estate) could meet local demand and be further connected to the trans-Sumatra transmission grid presently under construction.
Maintaining the current fertilizer production by feeding sufficient gas is essential for regional food security, as is the case of electricity provision. They both support wider national interests.
Whatever options taken, the planning and preparation for Arun post-2014 should begin now to avoid “sudden shock”, as has happened in the aftermath of mining, industry and trade agreements that were not appropriately anticipated.
Moreover to this concern, The Oil and Gas Upstream Regulatory Body (BP Migas) said that it was looking to buy liquefied natural gas (LNG) from rival gas-producing countries to supply its own buyers because the country’s LNG plant in Arun, Aceh could not meet export commitments due to declining natural gas reserves.
The decision was also made in order to provide natural gas to fertilizer firms in Aceh, who are facing a shortage, according to BP Migas’ deputy head Kardaya Warnika said. He said the agency may be forced to buy LNG from rivals Malaysia, Nigeria and Qatar to meet supply commitments to South Korean and Japanese buyers. The buyers have refused Indonesia’s offer to delay shipments of LNG from Arun, scheduled for the first quarter and second quarter of this year.
“”We are negotiating with Malaysia, Nigeria and Qatar,”” Kardaya told reporters.
LNG production in Arun has been declining due to the depletion of its gas reserves, he added. The depletion has forced PT Arun NGL Co. to quit operating some of its LNG trains in Lhokseumawe, Aceh province. The company is 55 percent owned by state oil and gas firm Pertamina, 30 percent by U.S. Company Exxon-Mobil Indonesia and the remaining 15 percent by Japan-Indonesia LNG Co.
Indonesia has another LNG plant in Bontang, East Kalimantan. But, at present, the plant has no surplus capacity to cover for Arun’s shortfall.
Kardaya said he hoped that by buying LNG from other countries to meet Arun’s commitment to buyers, natural gas from Arun could be used to supply fertilizer firms ASEAN Aceh Fertilizer (AAF) and PT Pupuk Iskandar Muda (PIM) as well.
AAF which is owned by the governments of Indonesia, Malaysia, the Philippines and Singapore, stopped operating in August but resumed operations in December only to stop again several days later when the natural gas supply was halted.
PT Pupuk Iskandar Muda currently only operates one of its two production plants because of a decreasing supply of gas. The 2,300 workers from the two firms are concerned about possible lay-offs if operations do not resume soon. They warned that should they lose their jobs, it would add to the problems of the province, which has been torn by the war between the military and the armed separatist group struggling for independence.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro said Megawati had made the suggestion to end the natural gas shortages in Aceh province at a Cabinet meeting on Wednesday. But Purnomo failed to give details on what sort of suggestions were given by Megawati. He only said the solution to the problem should consider macroeconomic aspects, fiscal aspects and socio-political interests.