Brunei backs combined Asia stance in LNG markets

Brunei backs combined Asia stance in LNG markets

Dow Jones, Bandar Seri Begawan

Asia's three major gas producing countries - Indonesia, Malaysia and Brunei - should continue pursuing a policy of cooperation to better compete in the global spot market, according to a top Brunei gas official.

"Cooperation is something that we've done in the past but only on an opportunistic basis...nothing formally agreed to," said the chief executive of Brunei Liquefied Natural Gas Sdn. Bhd., Hamdillah Abdul Wahab.

In an interview with Dow Jones Newswires conducted Wednesday, he said Brunei, Malaysia and Indonesia are now studying the compatibility of their LNG vessels to each other's loading ports as an initial step to putting a formal structure on the pursuit of increased cooperation.

Compatibility of vessels to ports is key in order for the three countries to better compete in global spot LNG trades.

The mix-and-match of vessels and cargoes is already happening, Hamdillah said.

Last year, Malaysia's state-owned oil and gas company Petroliam Nasional Bhd., or Petronas, used a Brunei LNG vessel to deliver a spot gas cargo, Hamdillah said.

Given uncertainties in demand from the region's main term buyers - South Korea and Japan - Indonesia, Brunei and Malaysia should be prepared to take advantage of any opportunities to sell any unsold cargoes on spot trade, he added.

Due to recent lower demand from Japan and South Korea caused both by the economic slowdown and the usual summer season slump, Brunei LNG was in a position to sell spot cargoes this month.

He said its term buyers took a lower volume, although still within contractual obligations, but left Brunei with unclaimed volume.

Brunei LNG then sold those cargoes. The company delivered a shipment of about 120,000 cubic meters of LNG to the U.S. and 75,000 cubic meters of LNG to Spain in mid-May.

Hamdillah said Brunei has sold another spot cargo, it's third for the year, to Spain for delivery in June or July. The cargo size is about 125,000 cubic meters of gas.

Currently, about 2.5 percent of Brunei's LNG sales are on the spot market, Hamdillah said. The rest is sold in term contracts to South Korea and Japan, which imports about 90 percent of its total LNG production.

"Spot sales will continue to account for a very small portion of our business," Hamdillah said.

"According to our master plan, we plan to seek an extension of existing contracts (with our Japanese buyers) beyond 2013," he added, referring to the year Brunei LNG's contracts with Tokyo Electric Power Co., Tokyo Gas Co. and Osaka Gas Co. expire.

Hamdillah said gas consumers, including South Korea and Japan, will also benefit from greater cooperation among the three producers.

Any disruption in supply from one country can be offset by supply from another under this cooperative pact, such as when Malaysia provided LNG to offset the halt in production from Indonesia's Arun gas field last year, he said.

Conflicts in the Indonesian province of Aceh where the Arun field is located have posed security problems for gas operator ExxonMobil Oil Indonesia Inc., forcing it to halt production for five months in 2001 and disrupting LNG exports from Indonesia. The long-standing dispute between local separatist group Free Aceh Movement and the central government in Jakarta remains unresolved.