Government sets eyes on domestic market to sell LNG

Evi Mariani, The Jakarta Post, Jakarta

Still shaken by the failure of Indonesia to win the recent bidding for a liquefied natural gas (LNG) supply contract to Taiwan and the decision by a Japanese firm to cut LNG imports from Indonesia, the government is new setting its eyes on the local market.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the government had laid out plans to build two LNG receiving terminals in Java, located in East Java and West Java respectively, as the first step to opening up the island to LNG supply.

"A consortium and the government is currently negotiating to build two receiving terminals," he said on the sidelines of the Indonesian International Oil, Gas and Energy Conference and Exhibition.

The state-owned gas distribution company, Perusahaan Gas Negara (PGN), and state-owned electricity company Perusahaan Listrik Negara (PLN) were mentioned as being among the members of the consortium.

He said the government expected the projects would be completed by 2007.

Indonesia, the world's largest LNG exporter, has been dominating the regional LNG export market for decades, but none of the product has been supplied to the local market.

For decades, the government preferred to export all the country's LNG as it was easy to sell the product given the lack of suppliers. But, the regional market has turned tougher following the entry of new players such as Malaysia, Australia, Qatar and Russia.

Indonesia now has two LNG plants, respectively located in Arun, Aceh, and Bontang, East Kalimantan, with a total production capacity of 31.6 million tons per year. The third LNG plant is being planned for the Bird's Head area of Papua.

Last week, Japan's Tohoku Electric Power Co. decided to cut its LNG imports from Indonesia from three million tons to 830,000 tons annually as the firm wanted to diversify its LNG sources.

Also last week, the Tangguh LNG project, which is being developed by a consortium led by BP PLC in Papua, failed to win the tender to supply LNG to Taiwan's state-owned electricity firm Taiwan Power Co. or Taipower. Taipower chose to source its LNG from Qatar's Ras Laffan Natural Gas Co.

The Tangguh project, which is designed to have an installed capacity of 7 million tons per year, has thus far only secured a contract to supply 2.6 million tons per year to China's Fujian province. Analysts say the failure to win Taiwan's tender has put the Tangguh project in limbo. But the project could go ahead should the government open the local market to its product.

Purnomo said the use of LNG on the domestic market would ease the country's LNG industry's dependency on overseas markets.

Purnomo admitted that it was difficult to compete with Qatar, which had such a huge amount of natural gas that it could offer very low prices to beat its competitors.

"We haven't received the official tender evaluation from Taiwan. But we believe Indonesia lost because Qatar offered a price that was even lower than our domestic price," said Purnomo. "So we think it's better for us to sell it on the domestic market."

He noted, however, that aside from seeking to open the local market, the government was still seeking to compete with other suppliers to supply the regional export market.

"We still have Japan, Korea, the Philippines and the West Coast (the United States) as our potential buyers," he added.