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The central government has decided to allocate all output from the massive Natuna D-Alpha gas block in the Riau Islands to the domestic market, in what is seen as the first major step toward ensuring future supplies.

The government plans to build two gas pipelines from Natuna as part of its master plan for domestic distribution through 2025, according to a Ministry of Energy and Mineral Resources decree signed on Jan. 27 but released only on Wednesday.

One 740-kilometer pipeline, with a capacity of one billion cubic feet of gas a day, will be built from Natuna to Batam Island and Duri, Riau. Another pipeline will link Natuna with Kalimantan.

BPH Migas, the country’s downstream oil and gas regulator, will hold a tender for the construction of the pipelines. The winner will also hold the rights to distribute the gas.

The government has not decided when the tender will be held.

Natuna D-Alpha is estimated to hold 46 trillion standard cubic feet of recoverable gas reserves and 80 trillion cubic feet of potential reserves.

The government has been under pressure from industry leaders to allocate more of the country’s gas output for domestic use. Fertilizer companies, ceramics makers and power plants, among others, are suffering from a gas shortage, forcing some to run at lower capacity or seek costlier sources of energy.  According to the country’s gas-balance report, the domestic market is estimated to suffer a gas shortage of 2.54 billion cubic feet per day this year.

“The existing supply can only fulfill about 75.7 percent of contracted and committed supply in 2010,” said Evita Legowo, director general of oil and gas at the Energy Ministry.

Dirgo Purbo, an energy analyst from the Bandung of Institute Technology (ITB), agreed that now was the time to prioritize future gas supplies for the domestic market.

“It is a strategic move by the government,” he said, adding that exports should only be allowed after domestic supplies were secured.

The planned pipeline from Natuna to Duri will also be connected with an existing state-owned pipeline linking Duri to Dumai, Riau and Medan, North Sumatra.

Meanwhile, the planned Natuna-to-West Kalimantan pipeline will be connected to an existing 755-kilometer pipeline connecting Banjarmasin, South Kalimantan, Palangkaraya, Central Kalimantan, and Pontianak, West Kalimantan.

The latter pipeline is currently transmitting gas from Chevron and Total E&P Indonesie fields in the region.

The planned West Kalimantan pipeline will also be connected to another existing 1,220-kilometer pipeline running from East Kalimantan to Central Java.

Uncertainty remains, however, about when development work at Natuna will actually begin. The government granted the development rights to state oil and gas company PT Pertamina in June 2008, but the government has yet to approve the proposed terms and conditions, which include a revenue split for Pertamina of up to 40 percent, compared to the normal 30 percent share.