Govt to establish team for Tangguh LNG project
Fitri Wulandari, Jakarta
The government is establishing a team to set up policies related to the Tangguh liquefied natural gas (LNG) plant being developed in Papua.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the establishment of the team will set up guidelines to solve any issues that may arise once the country's third LNG plant comes on stream in the future.
"This is a huge project and it requires an integrated policy," Purnomo told reporters on Tuesday, adding that his office would soon issue a decree on the establishment of the team.
Headed by an official from the Oil and Gas Implementing Body (BP Migas), the team will consist of officials from the energy ministry, the finance ministry, the office of Coordinating Minister for the Economy and state oil and gas firm PT Pertamina.
The LNG project is being built by a consortium led by British energy giant BP PLC.
The team will be tasked with setting up a strategy to solve problems related to securing supply to Tangguh's buyers, among other responsibilities.
"Once the Tangguh plant becomes operational, we should already have a clear policy on how to solve problems like the one that hit the Arun plant," Purnomo said.
The Arun plant recently faced difficulties meeting its commitment to buyers due to a shortage of gas supplies from American firm ExxonMobil. In the past, ExxonMobil supplied its gas to the plant and local fertilizer firms. It could not, however, continue to supply both because of a decline in its natural gas source.
In order to resolve the situation, the government bought LNG from other producers to meet Arun's obligation to foreign buyers and asked ExxonMobil to supply its gas to local fertilizer firms.
Another aspect that will be studied by the joint team concerns the distribution of the Tangguh plant's revenue between the government and the consortium that owns the project.
Purnomo said the government would like part of the revenue from the outset of the LNG plant's operation, rather than after the consortium paid all their costs.
Under the current production sharing contract (PSC), a contractor retains its revenue to repay investment costs and will share its revenue with the government after repayment.
In the case of the Tangguh plant, the government will receive some revenue from the plant only after the consortium reimburses all their expenses, including bank loans, for the development of the project.
Under a standard PSC, the government receives about 70 percent of the contractors' gas revenue.
"Tangguh has a huge investment of US$2.5 billion. We understand that investors have put a lot of money in it. But if we have to wait (until they repay all their investment costs), the government won't get anything," he said.
Located in Bintuni Bay, the Tangguh plant will draw from gas fields with proven reserves of 14.4 trillion cubic feet (TCF).
The plant is designed to have two trains with a combined production capacity of 7 million tons in its initial production.
The Tangguh consortium has secured deals to supply 3.15 million tons of LNG per annum to China's Fujian province and South Korean steel maker Posco.
It expects to clinch deals to supply another 600,000 tons to South Korean power company K Power and 3.7 million tons to U.S. energy company Sempra Energy.