Govt to ink deal with Japan on LNG

Leony Aurora, The Jakarta Post, Jakarta

The government plans to sign the heads of an agreement (HoA) by the end of this month with Japanese buyers to extend an existing liquified natural gas (LNG) supply contract of six million metric tons per annum that expires in 2010.

The pricing formula for the LNG cargoes produced by the LNG plant in Bontang, East Kalimantan, has been agreed upon, said Upstream Oil and Gas Regulatory Agency (BP Migas) chairman Kardaya Warnika on Tuesday.

Prices will be based on the Japanese cocktail crude price, he said, without elaborating.

"The Japanese buyers are also interested in extending the contract of another six million metric tons a year from Bontang," said Kardaya. "We have not made any decisions yet on this request. The gas resources in the area are finite."

Japan, which is Indonesia's largest LNG purchaser, has a contract for 12 million metric tons of the fuel annually from Bontang. The buyers in Japan had previously requested lower prices for the contract extension.

"We are asking for a suitable price, considering that oil prices have stayed above US$40 per barrel," BP Migas deputy of marketing and finance Eddy Purwanto said.

LNG prices have a strong correlation to oil prices.

Indonesia, the world's largest LNG exporter, has been forced to reduce LNG shipments for next year by 10 percent due to lower production from the aging gas fields in East Kalimantan and Nanggroe Aceh Darussalam, where the Arun plant is located.

Buyers in South Korea, Taiwan and Japan have agreed to cut their imports from the Bontang plant by 30 cargoes -- equivalent to 1.8 million metric tons of LNG -- down from the 370 shipments that had been ordered, BP Migas said on Oct. 21.

The agency is also trying to get nine shipments of 75 cargoes contracted from Arun, which is sees declining supply from fields operated by ExxonMobil Oil Indonesia, to be dropped.

The production of Chevron and Vico, which supply PT Badak NGL's plant in Bontang, is also on the decline. The only producer still able to raise production in the area is Total E&P Indonesie, which supplies some 70 percent of the natural gas needed by the plant.

Meanwhile, Eddy said that although PT Pacific Oil & Gas Indonesia had secured a preliminary license to build an LNG plant in Bontang with an annual capacity of 3.5 million metric tons, the plan still required still government approval to go ahead.

"The company will have to get supply from one of the producers," said Eddy. "They (the gas producers in the province) are having trouble already meeting their commitments (to the existing Bontang plant).

"Why should we have an LNG train in (the existing) Bontang plant lying idle while another plant is being built?" he asked.

The government would also take into consideration domestic demand for gas, particularly with given the plan to construct pipelines connecting gas-rich Borneo island to densely-populated Java, as well as state power firm PT Perusahaan Listrik Negara (PLN)'s plan to build an LNG receiving terminal in West Java.

Separately, Pacific Oil & Gas, which is majority owned by Pacific Oil and Gas International Corp., has secured a contract to supply LNG to Jiangshu, China, starting at the end of 2009, Antara news agency reported. PetroChina owns 30 percent of the company, while the Chinese government controls 10 percent of its shares.