Blame being tossed about after a major LNG-contract loss

Blame being tossed about after a major LNG-contract loss

Johannes Simbolon and A'an Suryana, The Jakarta Post, Jakarta

Indonesia's shocking "loss" in the highly-contested tender for
the liquefied natural gas (LNG) supply to the Chinese province of
Guangdong should serve as a wakeup call that the LNG market in
the Asia-Pacific region, which it had been dominating for
decades, is now much tougher and a better marketing strategy is
needed.

Otherwise, analysts said, Indonesia, the world's largest LNG
producer and exporter, may not only fail to win new orders in the
future, but also risk losing its existing customers.

"This is the first time Indonesia has failed to open a new
market in the region. In South Korea, Japan and Taiwan, we were
the first to enter the markets," energy analyst Ramses Hutapea
said over the weekend.

China awarded the Guangdong LNG supply contract to an
Australian consortium led by Australian energy giant Woodside
Petroleum Ltd, but, in what is seen as a conciliatory move, China
awarded the supply contract for the neighboring province of
Fujian to an Indonesian consortium led by Anglo-American energy
giant BP Plc, which owns the Tangguh LNG project in Papua.

Both consortiums as well as another one from Qatar led by
American energy giant ExxonMobil toughly contested the Guangdong
supply contract and none of them expected that China would award
the Fujian contract as a consolation prize for one of the losers
in the Guangdong tender.

Many things concerning the Fujian supply remain unclear as
details of the contract were still unavailable. Minister of
Energy and Mineral Resources Purnomo Yusgiantoro said the
government will send a task force to meet with the Chinese
government about the contract.

While the government publicly declared that the tender result
was good enough for Indonesia, many experts and politicians
deplored the loss and started questioning if the country was
still able to compete in the future.

"Indonesia's LNG industry is now facing a doubtful future,"
Ramses said.

Purnomo agreed that the LNG market had changed a lot compared
to the time when Indonesia, as an LNG pioneer in the region,
started its LNG business in the 1970s and became a dominant
player for the next 25 years. Then, Pertamina was the only
supplier on the market and had the power to dictate the market.
But, following the entry of new players from Malaysia, Australia,
Brunei Darussalam and Qatar in the late 1980s, the regional LNG
market's structure has turned from a "seller's market" into
"buyer's market".

Indonesia has to use a better marketing strategy than the
others' to win the competition, Purnomo reiterated.

"So far, we still have many advantages compared to other
competitors such as short distances to the markets, huge LNG
reserves and minimum production risk.

"However, we have to make efforts to change the comparative
advantage to a competitive advantage, namely through excellent
marketing efforts," Purnomo told reporters Friday in a press
conference to comment on the China tender result.

Local politicians and experts agreed with Purnomo.

Legislator Priyo Budi Santoso of the Golkar party contended
that the government had made a blunder by once sending a
delegation headed by President Megawati Soekarnoputri's husband
Taufik Kiemas, rather than a top governmental official, to lobby
the Chinese government for the Guangdong contract. The "Taufik
involvement", Priyo said, created an impression that Indonesia
was not serious in the marketing.

Experts however noted that the main weakness in Indonesia's
marketing efforts lay in the fact that the marketing team was
headed by U.K.-based energy giant BP, rather than state oil and
gas company Pertamina, which had done the job for decades. It was
the first time a private company was tasked with marketing
Indonesia's LNG.

Ramses said despite the rampant corruption within Pertamina
over the past several decades, the state company should be
commended for its success to make Indonesia the world's largest
LNG exporter and maintain Indonesia's leadership in the regional
LNG market for decades -- an achievement still incomparable to
any energy company in the region.

He said the government had made a mistake by allowing BP to
take over the leadership in the Tangguh LNG marketing.

"The government made a blunder by distrusting Pertamina. Also,
Pertamina did not apparently try hard to keep the leadership in
the marketing efforts because it is now being led by 'outsiders'
who do not understand the LNG business," Ramses said without
elaborating on the "outsiders".

Ramses argued one of the main reasons behind Indonesia's loss
in the Guangdong supply contract was that China doubted
continuity of supplies from the Tangguh project. This should not
become a problem as Indonesia also has other LNG centers in Arun,
Aceh and Bontang, East Kalimantan which could cover Tangguh's
supply obligation should it have a problem.

However, Ramses further said, China might fear other LNG
centers won't feel obliged to 'help' Tangguh in case of troubles
given the fact that China would deal with BP, rather than
Pertamina. Had Pertamina led the marketing effort, China would
not have been overly worried about the security of supplies
because Pertamina also manages the Arun and Bontang LNG centers.

A top executive with a foreign contractor said that Indonesia
was, in the past, successful in marketing LNG because of two
factors: a strong marketing team under the leadership of
Pertamina and a market situation which was not very competitive.

"Today, the market is very tough, and Indonesia should have a
strong marketing team to win.

"Unfortunately, we don't have a strong leader who can lead the
marketing team -- someone, maybe from Pertamina or another
government agency, who is able to fight for Indonesia's interest
rather than the interest of certain companies," the executive,
who wanted to remain anonymous said.