BP eyes Java market for Tangguh LNG

The Jakarta Post, Jakarta

After securing the Fujian supply contract, Anglo-American energy firm BP Plc is eyeing other markets outside China, including Java, to sell the liquefied natural gas (LNG) it plans to produce at the Tangguh LNG plant in Papua.

In the first phase of construction, BP and its consortium partners plan to install two trains at the Tangguh plant, with a combined capacity of seven million tons per year.

Under the contract signed on Thursday, China's Fujian province will only buy 2.6 million tons per year from the plant.

Philippine energy firm GNPower has signed a letter of intent to buy another 1.5 million tons per year.

Consequently, the plant still has an excess capacity of 2.9 million tons per year.

BP Indonesia president Bill Schrader said the company was seeking buyers for the excess capacity in India, Korea, Japan, the West Coast of the U.S and Java.

"It makes a lot of sense to sell LNG to Java. Although it has a lot of gas surrounding it, Java still has a high demand for gas," Schrader told The Jakarta Post in a special interview, adding that state electricity company PT PLN had indicated an interest to buy LNG for its power plants on the island.

Schrader said BP was giving consideration to building a floating LNG deliquefaction terminal to supply gas to customers in West Java, which is the country's primary industrial hub. Deliquefaction is the process of converting LNG to gas.

The potential of the West Java market has also been acknowledged by state gas transmission and distribution company PT Perusahaan Gas Negara (PGN). The state company has, for years, been planning to build a 900-kilometer pipeline from South Sumatra across the Sunda strait to West Java to carry gas from gas-rich South Sumatra to the industrial region. But it has thus far been unable to raise funds for the project.

PGN has said the project would cost $900 million.

PGN has even planned to build a pipeline worth $1.7 billion to supply gas from East Kalimantan to East Java.

Schrader refuted arguments that the planned LNG deliquefaction terminal offshore from West Java would be in conflict with PGN's pipeline development plan, saying instead that both facilities could complement each other to supply gas to the province.

He maintained, however, the cost of building an LNG-receiving terminal in West Java, plus the transportation cost from Papua to Java, was lower than the cost that would be incurred by PGN for the development of the South Sumatra-West Java pipeline.

The cost for the development of an LNG-receiving terminal was $300 million, according to Schrader.

Schrader claimed that BP and state-owned oil and research center Lemigas had once produced a study that concluded that it was economically feasible to sell LNG in Java.

The Tangguh LNG plant is located at Berau Bintuni Bay, which contains 14.4 trillion cubic feet of proven gas reserves. BP has 50 percent of the reserves, with the balance shared by Mitsubishi (16 percent), Nippon Oil Exploration (12 percent), British Gas (11 percent), Kanematsu Corp. (10 percent) and LNG Japan (1 percent).

Chinese state-owned firm China National Offshore Oil Corporation (CNOOC), which acts as the buyer in the Fujian LNG supply contract, will take a 12.5 percent stake in the gas fields.

The Fujian contract will generate a total of $8.5 billion in sales revenue to the government throughout the contract period of 25 years, while the two trains, if running at full capacity, will generate $21 billion in revenue.

Initially, BP and its partners had planned to install four trains at the Tangguh plant, which will generate $45 billion in revenue.