China to cut LNG imports from Tangguh

China to cut LNG imports from Tangguh

Leony Aurora, The Jakarta Post, Jakarta

China has requested that planned liquefied natural gas (LNG)
shipments from the Tangguh plant, operated by BP Plc., in Papua
be reduced by 61 percent, a top official says.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said on Thursday that China has a commitment to purchase 2.6
million metric tons of LNG per year from Tangguh starting in
2008.

However, "Fujian in the near future is only able to absorb 1 million
metric tons," Purnomo said, referring to the province where an
LNG receiving terminal plant is planned to be built. He did not
elaborate if the lower purchase would last for the entire
contract period of 25 years or not.

"We are discussing what to do with the remaining 1.6 million
(metric tons) and the possibility of diverting the gas," said
Purnomo.

The Upstream Oil and Gas Regulatory Agency (BP Migas), which
represents the Indonesian government in supervising all oil and
gas contractors, said that it had not received any notification
of such a shipment cut.

"I have not received any official report from China," BP Migas
chairman Kardaya Warnika said. "It is no problem for us if China
cannot take the entire (contracted cargo shipment)."

Indonesia may be advantaged by the lower shipment as it may
get higher prices for the LNG from other buyers.

The contract with Fujian was signed in 2002 at US$2.4 per
million British thermal units (mmBtu) free-on-board with an oil
price assumption of $20 per barrel. The LNG price will have a
limited fluctuation following the movement of global oil prices.

Kardaya said at current oil prices, LNG prices hover at
between $13 and $15 per mmBtu on the spot market.

Executive vice president of BP Indonesia Nico Kanter declined
to comment on the negotiations that took place.

"BP and Tangguh partners are working with BP Migas to make the
contract effective," he said through a text message.

"However, details of all Tangguh's export contracts remain
confidential."

Indonesia pins high hopes on Tangguh, the country's third LNG
plant, to make up for the dwindling production of two other
plants in Arun, Aceh and Bontang, East Kalimantan.

Kardaya said, however, that Tangguh has no contracted
obligation to cover for the dropped shipments from the other two
LNG plants. The government has had to negotiate with Asian buyers
to cut 52 shipments of LNG from Bontang and nine shipments from
Arun this year as aging gas fields in the provinces produce less
and new discoveries prove to hold less-than-estimated reserves.

BP, Europe's largest oil company, leads the consortium that
manages the long-awaited Tangguh LNG venture, which is estimated
to cost US$5 billion.

Located in the Berau-Bintuni region, the Tangguh plant is expected
to produce 7 million tons per annum in the first phase of
production scheduled in 2008. Gas fields, which will feed the
plant, have certified reserves of 14.4 trillion cubic feet (TCF).

BP has so far secured deals to supply a combined 7.6 million
tons of LNG worldwide, including to Sempra, K-Power, Posco, and
the Fujian terminal.