Mon, 16 Jun 2003

Extension of Japanese LNG contract vital: Total

Fitri Wulandari, The Jakarta Post, Jakarta

The world's fourth largest energy firm, Total, based in France, said the future of its business in Indonesia would depend on Japanese buyers' readiness to extend their contracts to purchase liquefied natural gas (LNG) from its Bontang plant.

Chief Executive Officer (CEO) of Total Thierry Desmarest said the company was unlikely to build a new train in the Bontang LNG plant until it can confirm that Japanese buyers would extend their contracts.

"It is more important for us to confirm that our existing trains have a market," Desmarest said in a press briefing on Friday.

Total, together with state oil and gas company Pertamina and American firm Unocal and Vico -- a subsidiary of Anglo-American firm BP PLC -- operate the Bontang LNG plant, which currently has eight trains with a total annual production of about 22 million tons.

On Friday, Desmarest and Minister of Energy and Mineral Resources Purnomo Yusgiantoro met with President Megawati Soekarnoputri and asked her to persuade Japanese buyers to extend their contracts with the Bontang plant during her upcoming visit to the country.

Bontang's sales contracts with Kansai Electric, Kyushu Electric, Nippon Steel, Tohoku and Tepko, amounting to a total of 10.15 million tons per year, are set to expire in 2010.

Several LNG producers from Australia, Qatar and Russia have been luring the Japanese buyers by offering cheaper prices.

If Japanese firms terminate their contracts, Indonesia could lose billions of dollars annually in potential revenue.

Separately, Desmarest expressed Total's interest in the 11 oil and gas concessions currently being offered by the government to investors.

"We are still studying these areas, but we are interested to join in the bidding," Desmarest remarked.

He lauded the government's move to increase the revenue split for investors interested in the new concessions, saying it was a necessary move to attract investors.

Under the new production-sharing scheme, investors may receive 20 to 25 percent of their oil output and 35 to 40 percent of their gas output. Under the existing production-sharing contracts, investors are entitled to 15 percent of their oil output and 30 percent of their gas output. The remainder goes to the government.

The 11 concession areas on offer are located: in Jambi and South Sumatra; off the coast of Rembang, Central Java; off the coast of East Java; off the coast of Bali; and off the coast of Tarakan island, East Kalimantan.

The tender for the 11 concessions will close in July, with the winning bidders to be announced in September.

Responding to government's move to liberalize the oil and gas industry, Thierry said the firm would wait until the industry had been liberalized before embarking on activities other than exploration and production.

"We need clarification on the role of BP Migas, the fate of Pertamina as well as competition in the industry," he said, referring to the Oil and Gas Implementing Body.

In 2001, the government liberalized the country's oil and gas industry with the endorsement of Law No. 22/2001 on oil and gas.

The law lifted state-owned oil and gas firm Pertamina's monopoly of the country's oil and gas industry, transferring the management of the country's upstream business from Pertamina to BP Migas.

The oil and gas sector has been the main source of income for the government for the past three decades.

Last year, 29 percent of the government's income came from the sector, on which investors spent $5 billion to $6 billion on exploration and production activities, or about 40 percent of the total investment in the country.