State player buying all gas from Conrad’s field off Indonesia to meet rising domestic need

Indonesian Ministry of Energy and Mineral Resources (MEMR) has issued a directive for all the gas from a field situated in the West Natuna Sea, Indonesia, operated by natural gas-focused Conrad Asia Energy to be made available for the domestic market.

According to Conrad, due to the strong growth in domestic demand for gas in Indonesia, the Ministry plans to purchase all the gas from the offshore Mako field through PT PLN Energi Primer Indonesia (PLN), a wholly owned subsidiary of PT Perusahaan Listrik Negara (PT Persero). The gas is intended for use in Batam, Indonesia.

As a result of the directive, Conrad is working with PLN and SKK Migas, which is the upstream regulator, to finalize a gas sales agreement (GSA) with PLN in March 2025 and sign it in the coming weeks.

This is seen as an important step in the commercialization of Mako field, said to be the largest undeveloped gas field in the West Natuna Sea. The field is expected to start production in 2026.

Conrad holds a 76.5% operating interest in the Duyung production sharing contract (PSC) holding the Mako field through its wholly-owned subsidiary West Natuna Exploration Limited (WNEL), with Coro Energy and Empyrean Energy holding 15% and 8.5% stakes, respectively. 

Since the gas price will be linked to the Indonesian crude price, which is comparable to Brent oil-linked liquified natural gas (LNG) pricing and economically equivalent to the pricing previously approved for domestic and international sales of gas from the field, the energy player believes the deal will underpin the value of gas from Mako.

Conrad Managing Director and Chief Executive Officer (CEO), Miltos Xynogalas, said: “Mako is the first of what we expect will be several gas projects that Conrad aims to bring into commercial production from our existing portfolio of gas discoveries, including our Aceh gas resources.

“Asia has the fastest gas consumption growth in the world. As its economies transition away from coal to the cleaner burning natural gas and we are proud to be involved in this transition. The resultant strong gas demand in Indonesia underpins the value of our discovered resources and our investment thesis.”

Consequently, the Ministry has revoked its earlier allocation and pricing directive to sell Mako gas to Sembcorp and PT Perusahaan Gas Negara (PGN), announced in September 2023 and June 2024, respectively.

As stated by Conrad, Indonesia’s new government intends to prioritize gas exploration and production to meet the rapidly rising domestic energy demand in its New Energy Plan 2024–2034. In January 2025, Indonesia’s Energy Minister Bahlil Lahadalia said that priority would be given to supplying domestic demand and exports would not be permitted unless that is met.

The growing popularity of data centers in Indonesia is said to be a factor contributing to an increase in energy demand. Driven by a combination of location, infrastructure, and government incentives, Batam is emerging as a prime destination for such data centers, claims Conrad. 

The energy player believes the five flow tested gas discoveries in Indonesia make it well-positioned to contribute to this increased demand. The Ministry’s directive is also anticipated to support the pending farmout arrangements in Duyung and Aceh and help speed up the financial investment decision (FID) for Mako.

“The Government recently announced of the roll-out a US$1.5 billion project to distribute liquefied natural gas (“LNG”) 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,” Conrad CEO added.

According to him, this has potential implications for Conrad’s discovered resources in offshore Aceh and its previously announced small-scale LNG collaboration with PGN.

Xynogalas went on to explain that while the revision of Indonesia’s energy priorities has impacted Mako’s timing, his company is now in a better position to find partners in all projects and has access to broader financing options from domestic sources.

It is Conrad’s understanding that the Ministry will direct PLN to build the required approximately seven-kilometer-long gas spurline valued at around $50 million to link the West Natuna transportation system with Pemping Island and subsequently to markets in Batam.

Paired with the anticipated growth in gas demand, this is expected to give a boost to the future exploration of Duyung PSC’s prospective resources and facilitate the commercialization of additional gas volumes.

Empyrean CEO, Tom Kelly, stated: “With a new government in Indonesia commied to providing gas powered electricity under its New Energy Plan, directing Mako Gas for the domestic market makes strategic sense. Empyrean is encouraged that this new development will lead to further short term momentum for the Mako Gas Field and Duyung PSC.”

The Duyung PSC is located in the Riau Islands Province, Indonesian waters in the West Natuna area, approximately 400 km northeast of Singapore. The Mako field is believed to contain 2C contingent resources of 376 billion cubic feet (bcf), 187 bcf of which are net attributable to Conrad.

The contract term is until the end of the Duyung PSC in January 2037 and allows for the sale of plateau gas rates of 111 nillion British thermal units per day (Bbtud), which is equivalent to around 111.9 million standard cubic feet per day (mmscfd).