Construction of Tangguh likely to start soon

Fabiola Desy Unidjaja, The Jakarta Post, Jakarta

The long-delayed construction of the Tangguh LNG plant in Papua may well start soon, with contentious issues between the government and the BP-led consortium that manages and controls the gas fields finally being resolved.

The government has extended BP's production sharing contracts in the three blocks that supply Tangguh -- Berau, Muturi and Wiriagar -- until 2035. The contracts for the blocks were previously due to end in 2017, 2022 and 2023, respectively.

"The government has extended the contracts to 2035 and they can continue operations in the three gas blocks," ministry of energy and mineral resources director of natural gas Novian M. Thaib told The Jakarta Post on Tuesday.

The extension was made official over the weekend, Novian said, adding that the government and BP had also reached a settlement on other contentious issues, including agreement on the government's share of revenue that BP earns from the three blocks that will be increased from 60 percent to 62 percent.

Another issue revolved around the so-called "acts of governments" clause -- a precautionary measure to anticipate unexpected disruptions to supply caused by government regulations that could lead to Tangguh's inability to fulfill gas supply commitments to buyers.

Under the settlement, any penalty resulting from late delivery of LNG shipments to any buyer would initially be paid by BP, but would later be reimbursed from Tangguh's revenues.

"Basically, in the contract extension we stipulated that the project will finance and operate itself," Novian emphasized.

Previously, the consortium had asked for protection in relation to the implementation of special autonomy in Papuan provinces.

Many companies have frequently complained about various bylaws issued by provincial and other local administrations throughout the nation that put unreasonable burdens on business activity.

The LNG plant is slated to start construction almost immediately and will be completed by 2008.

Indonesia is hoping that the operation of the Tangguh field will make up for dwindling gas production from the fields in Bontang, East Kalimantan and Arun, Aceh.

Tangguh has estimated gas reserves of 14.4 trillion cubic feet and is expected to extract more than seven million tons per annum in the first phase of production.

Tangguh has so far secured deals to supply a combined 7.6 million tons of LNG worldwide; namely to U.S.-based Sempra Energy, South Korea's K-Power Co. and steel maker Posco, as well as a plant in China's Fujian province.

The BP-led consortium will cover some US$2 billion of the US$5 billion estimated total cost of the project, with the balance coming from loans.