Indonesia's Pertamina agrees dimethyl ether deal

JAKARTA, July 2 (Reuters) - Indonesia's state oil and gas firm Pertamina said on Thursday it has signed a deal to buy dimethyl ether (DME), a methanol derivative, from private local company PT Arrtu Mega Energie to blend with liquefied petroleum gas (LPG).

DME has similiar properties to LPG, although is cheaper and it is said to be cleaner burning.

Indonesia is seeking to use more LPG in order to spend less on importing expensive kerosene used in cooking.

"The first delivery of DME is expected in 2011," Pertamina spokesman Basuki Trikora Putra said.

Christoforus Richard, Arrtu's president director, said the company would build a DME plant in West Java, near the Balongan refinery.

The plant is due to come onstream in 2011 and would have a capacity of around 800,000 tonnes a year and cost around $200 million, Richard said.

He said the feedstock of the plant was methanol which could be sourced domestically or imported.

Arrtu has said previously it planning to build a methanol plant in Riau, central Sumatra, to process around 6 million tonnes of coal a year as feedstock, he said.

The plan would cost about $1.7 billion to build and would use coal sourced from state mining firm PT Bukit Asam (PTBA.JK).

Construction is expected to start in 2010 and the plant, the country's first such facility, should be commercially operational in 2013.

Indonesia is seeking alternative sources of energy such as coal and LPG to meet rising demand from households and power plants.

Pertamina expects to import 1.42 million tonnes of LPG in 2010, up from 1.15 million tonnes in 2009.

Indonesia, the world's largest thermal coal exporter, is expected to produce around 230 million tonnes of coal this year, according to a government estimate.

(Reporting by Muklis Ali; Editing by Ed Davies)