In a controversial move, upstream oil and gas regulator BPMigas has ordered Japanese energy company Inpex to set aside more than a third of the total gas output of its Masela project to supply the domestic market starting in 2018.

“We want to boost domestic use of natural gas, as it’s cheaper relative to oil and it’s clean,” Hardiono, deputy head of BPMigas, said in an interview in Jakarta with Bloomberg on Thursday.

While welcomed in some quarters, the decision was questioned by the Indonesia Petroleum Association, which said Inpex was not obligated to supply local demand.

Indonesia, the world’s third-largest supplier of natural gas, is trying to increase production and use of gas to make up for declining output of crude oil, which led the country to leave the Organization of the Petroleum Exporting Countries in 2008.

Hardiono said output from the Masela project in the Timor Sea would be used to supply the liquefied natural gas plant in Aceh with 160 million standard cubic feet a day, or almost 1.5 million tons a year, starting in 2018.

The Aceh plant aims to cover gas shortages faced by fertilizer company PT Pupuk Iskandar Muda and other industries in the area.

Alfred P Menayang, Inpex’s external affairs manager, declined to comment on the issue, saying the company had yet to discuss domestic gas supply allocation with the regulator.

Suyitno Padmosukismo, executive director of the IPA, said that because Inpex’s production-sharing contract was signed before 2001, the company was not subject to any obligation to the domestic market.

“So we have to clarify why BPMigas came up with the decision,” he said.

“One important thing is the economics of the project, whether the domestic gas price will meet their investment.”

However, Pri Agung Rakhmanto, an analyst for the Reforminer Institute, said BPMigas had made the right decision.

“As the potential reserves from Masela are very high, the allocation for the domestic market is very important,” he said. “Unlike the Donggi-Senoro gas block, which has very limited reserves, Masela’s huge reserves will be better allocated for domestic market.”

The Masela LNG plant has a capacity of 4.5 mtpa. Inpex owns 90 percent of the project while PT Energy Mega Persada holds the remaining interest.

According to the regulator, Inpex will be required to supply the gas to a receiving terminal in Aceh province, Hardiono said.

Apart from the Masela project, Inpex plans to build a $19.6 billion floating offshore terminal with a capacity of 4.5 million tons to take output from the Abadi field in the Timor Sea.

Inpex had planned to use the new terminal, 200 kilometers south of Saumlaki Island, Maluku, to store gas from the Abadi field in the Timor Sea.

Inpex has said that the Abadi field, which is scheduled to start producing natural gas in 2016, could hold reserves of 10 trillion cubic feet.

Supplies for LNG-receiving terminals in West and East Java will come from the Bontang plant, operated by state oil company PT Pertamina, Hardiono added.

Meanwhile, Hardiono said that as a floating LNG storage facility in West Java was expected to start operating next year, the government had allocated 480 mmscfd, equivalent to 3.7 mtpa, from Bontang LNG’s plant in East Kalimantan.

The Bontang plant will also supply the planned LNG facility in East Java with 1.8 mtpa starting in 2014, and that will increase to 480 mmscfd or 3.7 mtpa in 2015, he added.