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.