Development of Tangguh LNG plant may be delayed

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)