Thu, 28 Aug 2003

Fitri Wulandari, The Jakarta Post, Jakarta

The upstream oil and gas implementation agency (BP Migas) is set to sign an early agreement on liquefied natural gas sales with U.S. buyers this week, which may pave the way for Indonesia to enter the lucrative U.S. market.

Deputy head of BP Migas Kardaya Warnika said that Indonesia planned to supply LNG to the U.S. west coast market.

"BP Migas hopes to sign a memorandum of understanding (MOU) for the gas sale with U.S. buyers sometime this week," Kardaya said on Wednesday. He added that chairman of BP Migas Rachmat Sudibyo would head a government team to the U.S.

After the MOU signing, there would follow talks on price, volume and supply, Kardaya said.

Indonesia now has two LNG plants, located in Bontang and Arun, which have a combined production capacity of 31.6 million tons per year?, per month?. Tangguh, the country's planned third LNG plant (in.....), is scheduled to begin construction next year.

Kardaya did not mention who the U.S. buyers were, but said the LNG supply was expected to occur in 2005. Previous press reports said that among the buyers were Sempra Energy and Chevron Texaco.

Analysts have said Indonesia should venture into the U.S. market outside its traditional market -- Japan, Taiwan and South Korea -- particularly after some failures in winning contracts in the latter countries.

They said while the traditional market had started to saturate, more new LNG producers had emerged. That had made the LNG market become more competitive for Indonesia.

The U.S. market, however, is still very open. Rising demand and declining supply have made the country an irresistible market in which to venture.

Anglo-American energy giant BP Plc., in its statistical World Energy Review 2002, reported that U.S. natural gas consumption in 2002 increased by 3.9 percent. Japan's Osaka Gas Co. said gas demand in the U.S. could increase by up to 7 percent by 2025 as domestic natural gas production declined.

Kardaya said declining gas supply from suppliers had caused gas prices to skyrocket in the U.S.

"At one time the gas price in the U.S. reached US$8 per million British thermal units (MMBTU)," he said.

Although the U.S. market promises lucrative gains, Indonesia will face tough competition from other LNG producers.

Australia, for example, has also been eyeing the market.

North West Shelf Gas Project, the biggest natural gas producer in Australia, has begun its plan to sell LNG to the U.S. west coast.

According to a previous press report the Royal Dutch/Shell Group, BP Plc and other partners established the $6 billion North West Shelf venture, which will cooperate with Chevron Texaco Corp. and Woodside Petroleum Ltd to sell the Australian product to the U.S.