Govt to ink deal with Japan on LNG

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.