Indonesia's East Kalimantan (EK) System comprises a considerable number of oil and gas fields developed under eight different Production Sharing Contract (PSC) areas. The hydrocarbon volumes produced from these fields are significant and constitute an important revenue stream for the Government of Indonesia (GoI). Gas supplied by the Contractors is processed at the Bontang plant to produce Liquified Natural Gas (LNG) and Liquefied Petroleum Gas (LPG), which are sold to both domestic and overseas buyers. A significant portion of the natural gas entering the EK System is also sold as pipeline gas to domestic plants located near Bontang for the production of urea, methanol, ammonia and electrical power. The contractual framework governing the EK System covers the production, supply, transportation, processing and liquefaction of gas and associated liquids from the PSC areas.

The core EK System agreements were entered into in the early 1970s in connection with the initial construction of the first two trains of the Bontang LNG plant and the signing of the first LNG sales contract with a consortium of Japanese buyers. These core agreements were comprehensively amended and restated from time to time to reflect changes in the operational, commercial and legal circumstances of the EK System. In addition, complex procedures and principles for the efficient operation of the EK System were developed over the years.

Prior to 2017 all gas entering the EK System was gas with a gross heating value (GHV) of over 1,108 BTU/SCF (rich gas). However, new gas development projects provided natural gas with a lower GHV (lean gas) for the first time and this led to new challenges for the EK System and Bontang plant operator. In particular they had to deal with a single commingled rich-lean gas stream entering Bontang LNG plant, ensuring that the LNG produced continued to meet the required sales specifications. In 2017 the EK stakeholders embarked on a radical overhaul of the EK System agreements to provide for the entry of lean gas into the system.

This paper will present a comprehensive picture of the current EK System, detailing its complexities and the challenges faced to upgrade it to accommodate the introduction of lean gas. The accounting model for assigning BTUs to each gas producer will be described and some possible future developments of the EK System will be proposed.

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