IPA13-BC-103

PROCEEDINGS, INDONESIAN PETROLEUM ASSOCIATION

Thirty-Seventh Annual Convention & Exhibition, May 2013
CENTRAL SUMATERA-WEST JAVA GAS SWAP ARRANGEMENT
Gadang Marpaung*

ABSTRACT
A gas swap arrangement has been established since
early December 2011 involving several parties
which consist of two gas producers, two gas
transporters, a gas buyer and SKK Migas (successor
to BPMIGAS) to enable delivery of gas under a gas
sales agreement between a gas seller or producer
having its gas plant in South Sumatera and a buyer
having its plant in West Java before the pipeline
infrastructure required to connect the gas plant and
the main transmission pipeline is completed.
Under the executed gas swap agreement,
ConocoPhillips (Grissik) Ltd. (CPGL) will deliver
up to certain volume of gas on behalf of JOB
Pertamina Jambi Merang (JOB PTJM) at the
Grissik Plant Gate to PT. Perusahaan Listrik Negara
(Persero) (PLN), as JOB PTJMs gas buyer. PLN,
as the shipper, will have PT Perusahaan Gas Negara
(Persero) Tbk (PGN), as the transporter, transport
the gas from the Grissik Plant Gate thru the PGN
South Sumatera West Java Pipeline (PGN SSWJ
Pipeline) to the PLN Muara Tawar Power Plant in
Muara Bekasi in West Java. In return, JOB PTJM
will deliver the same amount of gas to CPGL at the
Sei Kenawang-TGI Pipeline tie-in point. CPGL, as
the shipper, will have PT. Transportasi Gas
Indonesia (TGI), as the transporter, transport the gas
from the tie-in point thru the TGI GD Pipeline to
PT. Chevron Pacific Indonesia (CPI) receiving
facilities in Duri, Central Sumatera.
Complexities arose during development of the
agreement, which took about eleven months to
complete from the first kick-off meeting among the
parties in January 2011 to its full implementation in
early December 2011. Consideration of the existing
agreements between the parties, and the desire of
each party to protect its existing gas sales and
transportation agreements and to manage the
additional risks assumed versus the benefits gained
gas in Indonesia. For those areas where gas sources
have been connected to the market in the past, the
*

ConocoPhillips Indonesia

through the swap arrangement contributed to the

extended time required to conclude the agreement
and obtain approval by the parties respective
managements.
The multi-party negotiation was finally completed
as the parties, with the leadership and facilitation of
SKK Migas, jointly worked to find a creative
solution to PLNs persistence to reduce the use of
diesel fuel oil at its PLN Muara Tawar Power
Generation Plant by utilizing natural gas from its
own gas sales agreement with the upstream gas
producer.
The execution of this gas swap agreement has
provided benefit to the government in the form of
direct fuel cost savings to PLN that can contribute
to the reduction of the electricity subsidy. The use
of natural gas will allow PLN to operate its power
plant in a more environmentally friendly manner.
Further, the swap arrangement has facilitated the
allocation of JOB PTJM gas to the PLN Muara
Tawar Power Generation Plant as per the allocation
plan.
This paper shares the experience of developing a
pipeline gas swap arrangement which can be used
as a benchmark for future gas delivery
arrangements through pipelines in the country. The
presence of existing main gas transmission pipeline
infrastructures and additional gas sources
surrounding the pipelines provides the opportunity
for natural gas deliveries to move from traditional
point-to-point arrangements to multi-point sources
and multi-point offtakes, which may require swap
arrangements (such as this one) as are already
utilized in mature markets.
INTRODUCTION
The mismatch between locations of gas sources and
market centres and the unavailability of pipeline
infrastructure connecting those locations had
contributed to the difficulty in monetizing natural
pipeline infrastructure was developed about 10-15
years ago on a point-to-point (or dedicated) basis to

support the anchor gas sales agreement at the time.

Efforts to convert the dedicated pipelines to openaccess was carried out and faced challenges relating
to honoring existing agreements already in place
before the access arrangement regulation was
issued.
The CPGL Grissik Gas Plant was placed into
service in 1998 to monetize Corridor Block PSC gas
by selling the gas to CPI in Central Sumatera (Duri)
to be used for enhanced oil recovery (steam flood)
activities. The TGI Grissik to Duri Pipeline (TGI
GD Pipeline) was built and placed into service at
the same time to enable transportation of the gas to
Duri. The TGI GD Pipeline capacity was expanded
in 2001 by adding two booster compressor stations
in the pipeline to support additional sales volume by
CPGL to CPI. The TGI GD Pipeline was originally
built to be a dedicated pipeline which provided the
original existing shippers with some privileges over
the incoming shippers as captured in the original
gas
delivery
procedures
supporting
the
transportation agreements.

In 2003, the TGI Grissik to Batam/ Singapore

Pipeline (TGI GS Pipeline) was put into service to
support and enable additional gas sales from the
Corridor Block PSC to Singapore as well as Batam.
In 2007, the PGN SSWJ Pipeline was put into
service to support and enable gas sales from CPGL
at the Grissik Gas Plant to PGN for PGNs end
users in West Java. Both the TGI GS Pipeline and
the PGN SSWJ Pipeline were at their respective
capacities when this gas swap arrangement was
made.
JOB PTJM planned to monetize its gas fields thru
the Sei Kenawang Gas Plant in South Sumatera by
selling the majority of its gas to the PLN Power
Plant in West Java. The intention was to deliver the
gas from the Sei Kenawang Gas Plant to West Java
thru a lateral pipeline connecting the plant and the
PGN SSWJ Pipeline with a tie-in point in the CPGL
Grissik Gas Plant area. The remaining portion of the
gas was to be sold to other markets in Central
Sumatera, Batam and South Sumatera via the TGI
GD Pipeline and the TGI GS Pipeline through
lateral pipelines with tie-in points in the Simpang
Bayat area.
To avoid potential delay in monetizing JOB PTJMs
gas, in October 2010 SKK Migas requested CPGL
to execute a gas swap arrangement with JOB PTJM
for JOB PTJMs gas supply to PLN West Java with
part of CPGLs gas supply to CPI. In January 2011,

a kick off meeting was held at SKK Migas

involving (i) CPGL being the existing gas producer
supplying gas to the north and south thru the TGI
GD Pipeline and the PGN SSWJ Pipeline
respectively, (ii) TGI and PGN being the gas
transporters to the north and south respectively, (iii)
JOB PTJM being the new gas supplier, (iv) PLN
being the gas buyer in the south for the new JOB
PTJM gas, and (v) CPI being the gas buyer in the
north for CPGL existing agreements as well as for
the JOB PTJM new agreement. The objective of the
kick off meeting was to establish the gas swap
arrangement.

Given that there was a very limited success of

multiparty pipelined gas swap arrangement in
Indonesia and in other parts of the world, the parties
were initially unsure whether a successful
conclusion could be reached. In fact, each party
naturally tended to try to protect its position with
regard to its existing gas sales and transportation
agreements.
At the time the initial development discussion
regarding the swap was held, the following
agreements were in place or in the process of being
put in place:
(i) CPGL gas sales agreements with CPI and gas
transportation agreements with TGI to transport
gas from the CPGL Grissik Gas Plant to CPI in
Central Sumatera and gas sales agreements with
PGN for gas supply to West Java;
(ii) JOB PT JM gas sales agreement with CPI and
the related gas transportation agreement with
TGI to transport the gas, and a gas sales
agreement with PLN for supply to the PLN
Muara Tawar Power Plant in West Java; and
(iii) PLN has interruptible gas transportation
agreement with PGN to deliver such gas
through the PGN SSWJ Pipeline.

METHODS
In accordance with the agreement made between the
managements of PLN, MIGAS, SKK Migas, and
JOB PTJM to pursue the development of the swap
arrangement, SKK Migas continued to lead the
discussions and issued a gas allocation table based
on JOB PTJM actual production, which sets out the
quantities of JOB PTJM gas that can be delivered
under the gas swap arrangement.

a. Gas Swap Allocation Table

The issuance of the gas allocation for the JOB
PTJM swap gas by SKK Migas provided initial
clarity for the parties on the objective of the gas
swap arrangement in terms of ultimate delivery
of the swap gas.
The follow up discussions started to split into
several separate meetings between parties of
existing agreements. These meetings were
intended to protect the confidentiality of
existing agreements while exploring ways to
enable the gas swap arrangement.

The PGN confirmed quantity will be submitted

to all such parties by 10:00 a.m. By 11:00 a.m.
TGI will confirm to all such parties if it has
available pipeline capacity under its gas
transportation agreement with CPGL equivalent
to the PGN confirmed quantity and if not the
PGN confirmed quantity will be adjusted
accordingly. The lowest of the PLN gas
nomination, PLN gas allocation, JOB PTJM
nominated gas swap quantity, CPGL nominated
gas swap quantity, PGN confirmed quantity,
and TGI confirmed quantity will be used as the
quantity of gas to be swapped on the following
day as the daily confirmed gas swap quantity.

b. Gas Swap Agreement

After several meetings on the key principles of
the swap arrangement, CPGL was asked to lead
the drafting of the gas swap agreement which
became the main agreement among the parties
regarding the swap arrangement. The gas swap
agreement uses the gas swap allocation table as
the main reference and contains provisions to
enable the delivery of the gas swap, which was
obviously not provided for under the existing
agreements. Multiples revisions and edits by
parties were made before the final document
was concluded.
c. Gas Swap Nomination & Delivery
Gas nomination was one of the most
challenging technical aspects in the initial
discussions by the parties. The gas swap
nomination procedure was drafted such that the
existing nomination procedures under the
existing agreements could continue to be used
for gas not involved in the gas swap
arrangement and only additional provisions
necessary to enable nominations of the gas
swap arrangement were added.
The nomination process starts when PLN, as the
ultimate end user in West Java, submits its
nomination for the following day to JOB PTJM
by 8:00 a.m. JOB PTJM will then determine the
amount of gas to be allocated to PLN based on
the agreed gas allocation table. JOB PTJM will
then nominate the PLN nominated gas quantity
to all the other swap arrangement parties. CPGL
will then nominate to all such parties a quantity
of gas equivalent to the quantity nominated by
JOB PTJM. PGN will then confirm if it has
sufficient capacity in the pipeline and if not the
quantity nominated by CPGL will be adjusted.

Each day CPGL and JOB PTJM will use

reasonable endeavors to deliver the daily
confirmed gas swap quantity on behalf of each
other at the respective delivery points.
d. Title to the Gas
Title to the gas involved in the swap
arrangement will reside at all times with SKK
Migas until delivered to the CPI delivery point
and the Grissik delivery point.
e. Gas Delivery, Balancing and Reporting
The parties spent time discussing how to handle
gas imbalances resulting from the swap
arrangement. An approach was introduced that
involved cash transactions but was rejected by
the upstream parties as it was not feasible from
a PSC accounting perspective. The parties
finally settled on a simple process.

If CPGL cannot deliver a quantity of gas

equivalent to the JOB PTJM actual gas swap
quantity then the amount by which the JOB
PTJM actual gas swap quantity exceeds the
quantity of gas delivered by CPGL shall be
deemed to be a delivery by JOB PTJM to CPI.
In such case, the JOB PTJM actual gas swap
quantity will be equivalent to the CPGL actual
gas swap quantity. If the gas sales agreement
between JOB PTJM and CPI is no longer in
effect then CPGL will use reasonable
endeavours to make up such difference.
PGN shall provide to CPGL and JOB PTJM the
daily confirmed gas swap quantity each month
and the CPGL actual gas swap quantity for each
day. TGI shall do the same for the daily

confirmed gas swap quantity and the TGI actual

delivered gas swap quantity.
f.

h. Force Majeure and Consequential Loss

A party under the gas swap agreement can
declare force majeure and will not be liable to
the other parties for its failure to perform due to
such force majeure provided that such party is
subject to a force majeure event under the terms
of the relevant gas sales agreement or
transportation agreement.

Invoices & Swap Service Fees

The monthly tariff for transportation of the JOB
PTJM actual gas swap quantity shall be
invoiced by TGI under the existing gas
transportation agreements between TGI and
CPGL. The monthly tariff for transportation of
the CPGL actual gas swap quantity shall
invoiced by PGN under the existing gas
transportation agreement between PGN and
PLN.

No party shall be liable to any other party for

any consequential loss.
i.

The concept of using a letter agreement was

introduced and subsequently implemented as an
instrument between parties that had one or more
agreements in place but needed special
provisions to support the implementation of the
gas swap agreement. The terms of the letter
agreement were designed to supercede the
terms of the existing agreements.

The amounts due for gas swap quantities will be

included in the invoices issued under the
relevant existing gas sales agreements. The
monthly invoices issued by CPGL to CPI under
the existing gas sales agreements between the
parties will include the amounts owed for the
JOB PTJM actual gas swap quantity; while
monthly invoices issued by JOB PTJM to PLN
under the existing gas sales agreements between
the parties will include the amounts owed for
the CPGL actual gas swap quantity.

CPGL and TGI implemented a letter agreement

to capture, among other things, the gas
allocation and attribution related to their three
existing gas transportation agreements as result
of accommodating transportation of gas for the
gas swap agreement. Gas delivered by TGI at
the CPI delivery points will be attributed in
accordance with minutes of meeting made
among the relevant parties and including CPI
and SKK Migas, which were incorporated in
the letter agreement. To avoid significant
amendment of the existing gas transportation
agreements, the existing CPGL delivery point
has been expanded to include the JOB PTJM
receipt point. Fuel gas and lost gas calculations
were also included in the letter agreement.

Throughout the discussions, each party always

tried to avoid additional liabilities as result of
entering into the swap arrangement. It was
finally determined and agreed that TGI would
receive compensation for the administration
services it provides in support of the gas swap
agreement in an amount determined by whether
or not its revenue is impacted as the result of
transporting the JOB PTJM actual gas swap
quantity.
g. Off Specification Gas
CPGL and JOB PTJM must ensure that gas
provided under the gas swap agreement meets
the required gas specifications and each party
must notify the other as soon as it becomes
aware that any of its gas fails to meet the
required specification. Each party has a limited
time after receiving such notice to advise if it
will or will not accept the off specification gas
and will be deemed to have accepted delivery of
such gas if it continues to take such gas after
such deadline.
In accordance with the existing gas
transportation agreements, the rights of TGI and
PGN, as transporters, are not limited in relation
to the gas specification.

LetterAgreement

j.

Communications Prior to the

Implementation
Before implementation of the gas swap
agreement, meetings were held among the
relevant parties to ensure its smooth
implementation.
CPGL, JOB PTJM and TGI conducted a
meeting with CPI to discuss among others the
implementation of the gas swap arrangement,
explain the order of nomination involving all
parties, and explain the order of priority.
Separately PGN conducted a meeting with the
relevant parties related to the access

arrangement of the PGN SSWJ Pipeline and to

also discuss the implementation of the gas swap
arrangement.
RESULT
Following the lengthy multi-party effort to develop
and conclude the gas swap agreement, the parties
executed the agreement. Immediately thereafter,
SKK Migas issued a letter to all parties to formally
declare the implementation of the executed gas
swap agreement which was effective 1 November
2011.
Implementation of the gas swap agreement went
smoothly as the gas swap quantity was gradually
increased in accordance with the nominations by
PLN. As requested by SKK Migas, CPGL regularly
reports on the implementation.
Good communication amongst the parties under the
existing gas sales and transportation agreements has
been continued under the gas swap agreement and
has contributed to the successful implementation of
the gas swap arrangement. For example, in the few
cases where the gas swap quantity was not available
to a buyer for reasons such as planned maintenance
by a gas swap quantity supplier, the buyer was not
impacted because the buyers nomination was then
supplied through its existing gas sales agreement.
CONCLUSION
The gas swap arrangement has enabled delivery of
gas while awaiting the completion of physical
pipeline infrastructure. To be supported by the
relevant parties, the arrangement had to be crafted
in such a way as to keep the parties whole.
The role of SKK Migas in initiating, facilitating and
keeping all the parties committed to the
development and conclusion of the gas swap

agreement has been the key success factor in

realizing the first multi-party pipeline gas swap
arrangement in this part of Indonesia. Without the
leadership of SKK Migas, the parties would have
likely continued to seek maximum benefits in their
individual capacities rather than the optimum
position for all parties involved. In the absence of a
project lead like SKK Migas the deal might not
have been concluded as has been the case of many
attempted gas swap arrangements done on a purely
business-to-business basis.
The side letter approach proved to be an effective
way of accommodating agreements reached
between the parties of the existing gas sale and
transportation agreements to support the gas swap
arrangement, as well as isolating and protecting the
confidentiality of such agreements between the
parties from the non-related parties.
This gas swap arrangement and the lessons learned
during its development and implementation
provides evidence that similar swap arrangements
can be successfully developed and implemented in
Indonesia.
ACKNOWLEDGMENT
The author would like to thank the Management of
SKK Migas and MIGAS for allowing this paper to
be published for this IPA 37th Convention &
Exhibition. Also thanks goes to the Management of
ConocoPhillips (Grissik) Ltd., PT. Pertamina Hulu
Energi Jambi Merang, Talisman (Jambi Merang)
Limited, Pacific Oil & Gas (Jambi Merang) Ltd,
PT. PLN (Persero), PT Perusahaan Gas Negara
(Persero) Tbk, and PT. Transportasi Gas Indonesia
as the parties to the Gas Swap Agreement. At last,
thanks is also extended to the IPA 37th Convention
& Exhibition Technical Program Committee for
selecting this paper to be included in this
convention.