BP expects LNG project to begin 2nd quarter 2002

JAKARTA (JP): British-American oil and gas company Beyond Petroleum (BP), formerly British Petroleum, expects the construction of the Tangguh liquefied natural gas (LNG) project in Irian Jaya to start in the second quarter of next year, a company official said on Tuesday.

"We're talking possible construction sometime in spring next year," BP senior vice president for external affairs John O'Reilly told reporters on the sidelines of a seminar on the impact of regional autonomy on the energy sector.

BP, along with its partners, plans to export LNG from the planned LNG center, which is located in Berau Bay.

Gas supplies for Tangguh will come from nearby gas fields in Wiriagar, Berau, and the Muturi areas which have proven gas reserves of 14.4 trillion cubic feet (tcf).

O'Reilly said BP would start construction of the Tangguh LNG center after completing an environmental assessment of the project.

BP started the environmental study last year to assess the impact of the project on the surrounding communities and environment.

"It (the study) is a consultative process, and the terms of reference are being decided by the (government's) Amdal (Environmental Impact Analysis) commission," O'Reilly explained.

According to Pertamina, the Amdal for Tangguh is the first in the country's oil and gas industry to include consultation with the local community.

Under this process, Pertamina informs locals of the outline of the construction and the impact of the project on the surrounding areas.

Locals are then invited to consult and provide Pertamina with input before construction of the project begins.

"The pace of the project will depend on when we get the approval of the environment agency," O'Reilly said in reference to the Environmental Impact Management Agency (Bapedal).

Another key factor is finding a long-term buyer for Tangguh's LNG to secure the project's return on investment.

Pertamina and BP initially planned to start Tangguh's construction this year.

But the absence of a long-term buyer forced them to revise the schedule.

However, O'Reilly said that BP remained upbeat on its original target to start Tangguh's LNG production by the year 2006.

"No change on that, so that's an ambitious schedule. With good fortune and market, we believe we can start production in 2006," he said.

He said that among the most potential buyers of Tangguh's LNG was China.

Pertamina has said that the company and BP sought to supply power plants in China with three million tons of LNG.

"BP has won the part of the contract to build the Guangdong LNG terminal," O'Reilly said.

He said the Chinese government would then proceed with the tender of the LNG supply, in which BP and Pertamina could participate.

O'Reilly declined to mention the time frame for the tender process, or when BP expected the Chinese government to announce the winner.

Aside from China, the two companies are also seeking to increase Indonesian LNG exports to Taiwan.

After Japan, Taiwan is the second largest buyer of Indonesian LNG, with imports of over three million tons per year.

Pertamina said that the planned LNG supplies would be for Taiwan's Tatan Power Plant, which would be developed by Taipower in the northern part of Taiwan.

But Pertamina is still undecided whether to supply Taiwan with LNG from Tangguh, or from the Bontang NGL Co plant in East Kalimantan.

According to Pertamina president Baihaki Hakim, LNG from Tangguh may be less competitive, because construction of the plant had not begun yet, which raises the cost of selling the LNG.

Pertamina further said that a surge of new gas suppliers across the globe had made competition tougher.

Among Indonesia's new competitors is Qatar, which is also eyeing the supply of LNG to Taiwan and India.

The growing supply of LNG has further increased buyers' leverage so that they can demand better contract terms, such as shorter LNG contracts or the freedom to buy small quantities.

In response to the difficult market conditions, Pertamina said it might start the Tangguh project even though the company could only secure a short-term contract enough for the development of one LNG train. (bkm)