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The entry of petroleum giants ExxonMobil, BP and Total into coal-bed methane (CBM) exploration, Indonesia's promising new frontier in natural gas development, looks likely to revive long-delayed plans for a Kalimantan-Java pipeline.

French-owned Total, Kalimantan's largest conventional gas producer, continues to insist it does not have enough offshore reserves to meet overseas liquefied natural gas (LNG) contracts and supply piped gas to the domestic market as well.

But following a trend in the five coal-mining states of the northeast United States, ExxonMobil and BP could well propel CBM exploration into the limelight - and boost conventional gas exploration as well.

"This is a revolution, not an evolution," said veteran gas consultant Richard Fuller, who has lived and worked in Indonesia for the past 30 years. "CBM has the potential to give Indonesia the opportunity of becoming the region's lowest energy-cost economy."

The development would almost certainly mean going ahead with the proposed 1,200km-long pipeline from Samarinda in East Kalimantan to Semarang on the northern coast of Java - and then linking it to a trans-Java distribution system.

That should please politician-tycoon Aburizal Bakrie, whose conglomerate holds the license for the US$1.6 billion project. It was given the go-ahead in 2005 but has been stymied since then by an apparent lack of available gas.

Natural gas and non-fossil energy play a significant role in government efforts to reduce the country's dependence on oil from 55 per cent to a targeted 20 per cent of the national mix by 2025.

Globally, the prospect of unconventional gas entering the market has been one of the main factors keeping gas prices down to $6 per million British thermal units (BTU) on the world market, compared with $18 for Brent crude.

Studies have shown that there is as much as 5.1 trillion cubic meters of CBM in two large basins in East and South Kalimantan at depths of between 300m and 1,000m. That is a lot farther down than the shallow seams which have turned Indonesia into the world's biggest coal exporter.

Only 10 percent to 15 percent is thought to be recoverable. But another 566 billion cubic meters in conventional reserves make the overall gas resource about the same size as the Marcellus Basin, a trillion-dollar shale gas deposit hailed as one of America's richest energy finds.

With another 7.1 trillion cubic meers of CBM potential in southern Sumatra, where pipelines already supply conventional gas to Singapore and Jakarta, Indonesia boasts more than 12.8 trillion cubic meters of CBM, or the equivalent of 81 billion barrels of oil.

ExxonMobil has started drilling the first of 19 planned wells in its three concessions in South Kalimantan's Barito Basin. "It's kind of like a science project," said country head Terry McPhail, who reckons significant amounts of gas will be flowing before the end of the decade.

BP has a head start in CBM development because of its stake in Vico, which already has 800 production wells as the pioneer of Indonesia's natural gas development in the early 1970s.

With three or four years to study the data from the wells, it recently acquired four new concessions - one near the Vico's old Sanga-sanga gas field and three others adjoining ExxonMobil's concessions in the Barito Basin.

Successful CBM development differs substantially from that of conventional gas, often requiring thousands of shallow wells and a major de-watering process to release the gas trapped in the coal bed.

But these same characteristics also come with high employment requirements and the promise of strong economic growth. The Marcellus Basin development, for example, is creating 15,000 jobs a year.

While a trans-Java Sea pipeline would be timely for CBM development, it is also likely to stimulate conventional gas production by reducing the size of exploration targets - as has happened in the US Gulf Coast and the North Sea.

The project could bring familiar controversy as well because big producers will always prefer the 25 percent premium that comes with selling gas to the export-orientated Bontang LNG facility.

Proven reserves of conventional gas in East Kalimantan amount to about 510 billion cubic meters, but Total, Chevron, ExxonMobil and a separate five-company consortium are all actively exploring the deeper waters of the Mahakam Basin and the adjoining Makassar Strait.

Next year, Bontang will begin supplying an annual 1.5 million tonnes of LNG to a new West Java floating terminal for use in electricity utility PLN's 1,200MW Muara Karang station and possibly other power plants serving Jakarta.

But liquefying and transporting the gas, combined with the costs of re-gasification and the fuel needed to manufacture LNG, will add an estimated 3.4 US cents per million BTU to the Kalimantan wellhead price of US$9.45, based on oil prices of US$90 a barrel.

That is about twice the cost of delivering the gas by pipeline and it raises questions about the viability of other planned LNG terminals.

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 021 2553 5055