Development of Tangguh LNG plant may be delayed

JAKARTA (JP): Development of the Tangguh liquefied natural gas (LNG) plant in Irian Jaya may be delayed if China, its main potential customer, seeks more than one source to supply the LNG needs of its Guangdong LNG project, state oil and gas company Pertamina said here on Thursday.

Pertamina president Baihaki Hakim said if China sought more than one LNG supplier the export volume would no longer be economically viable for the Tungguh development.

Baihaki said he heard that China would split its planned LNG import tender, but admitted that he had not been formally notified about such a move.

"According to informal sources, it looks like it's heading that way," Baihaki said after attending a hearing with the House of Representatives' Commission VIII, which oversees energy affairs.

Pertamina intends to join the tender for supplying the Guangdong LNG project, which offers potential sales totaling 3 million tons of LNG annually, beginning in 2005.

A deal with China would pave the way for construction of the LNG plant in Tangguh, which Pertamina would jointly develop with the British-American oil and gas company Beyond Petroleum (BP), formerly known as British Petroleum.

During the first stage, the Tangguh plant would build two LNG trains worth US$1.5 billion. Both trains would have an annual production capacity of 6 million tons of LNG.

Industrial sources, however, said the China National Offshore Oil Corps (CNOOC) is seeking two sources to feed its Guangdong LNG project to ensure a stable supply of gas.

Pertamina has said that commencing the Tangguh project is deemed as too risky for low volume markets. As a completely new project requiring significant capital investment, Tangguh's first market must ensure investors are able to cover the costs of constructing not only the LNG plant, but also the infrastructure to support its operation.

The project is in a remote location, with gas supplies available from the Wireagar, Berau and Muturi areas, which contain more than 14 trillion cubic feet (tfc) of proven gas reserves.

Asked whether the Tangguh project was still feasible if its market purchased under 3 million tons a year, Baihaki said that Pertamina had yet to look into the matter.

He suggested that Pertamina might have to switch the LNG supply from Tangguh to the Bontang LNG plant in East Kalimantan.

"I can't say anything yet, but we'll do what's best for the country, which in my view is Tangguh," he said.

Starting the Tangguh project would also deliver strategic benefits for the government, which is struggling against calls for secession in the natural resource rich province.

Baihaki said the Tangguh LNG plant would contribute greatly to the economy of the Irian Jaya people.

"From a political viewpoint, it's fairer to prioritize Tangguh," he said.

CNOOC recently distributed the Chinese government's suggested standards to be used in the selection of Guangdong LNG suppliers.

Sources say selection is based on the resources of the host country, stability of production, experience in long-term supply and political stability.

Indonesia may face difficulties meeting these conditions, especially after security threats forced it to suspend operation of its Arun gas fields in Aceh, cutting off LNG supplies to Japan and South Korea.

The suspension has tarnished Indonesia's reputation as a reliable LNG supplier.

Meanwhile, Ministry of Energy and Mineral Resources oil and gas director general Rachmat Sudibyo said the government was also considering using Tangguh's LNG to meet domestic gas demand.

He said that Tangguh's LNG could be shipped to Java to cover an estimated shortfall in gas supply in the near future.

"But the economic feasibility of such a plan is also still questionable and awaits further analysis," he said.

Rachmat confirmed reports stating that, by the year 2006, East Java alone could face a shortage of 750 million cubic feet of gas per day.

Rachmat said, however, that Tangguh's LNG would have to compete against the abundant natural gas reserves already existing in Java.

Development of these fields depends on feasibility studies for a gas pipeline grid that would connect the small but abundant gas fields across the island, he explained. (bkm)