Hoping for big fortune from China's LNG imports

Hendarsyah Tarmizi, The Jakarta Post, Jakarta

China is set to announce this month whether Indonesia, Australia or Qatar will win the multi-billion dollar contract to supply the country with Liquefied Natural Gas (LNG).

For Indonesia, winning the tender will further strengthen its leading role in the world's LNG market. But above all, securing the contract will give the winner a vote of confidence to further tap the growing LNG demand in the world, particularly in developing Asian nations.

Indonesia, Australia and Qatar have been selected to join the final bid to supply up to three million tons of LNG a year to China's Guangdong province beginning in 2005.

With its massive gas reserves, and relatively closer distance, not to mention its long experience in the LNG production, Indonesia should have the best chance to win the tender.

The Indonesian government has conceded that although the country risk of the two rival countries is better, the security and political condition in Indonesia is now quite stable.

Last year, the United States-based ExxonMobil Indonesia was forced to suspend the operation of its Arun LNG plant in Aceh following attacks allegedly from members of a separatist group. But the suspension did not severely disrupt its exports because Arun's export commitment could be met by other LNG plants in Bontang, East Kalimantan.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that Indonesia had guaranteed China that there would be no problem with the continuity of the supply.

"With the supply guarantee, competitive prices and good bilateral relations with China, we are optimistic that we will be able to win the tender," he told reporters in Jakarta early last week.

The Tangguh LNG plant which will supply the LNG to China will be built by Anglo-American gas company BP Indonesia in Papua, previously known as Irian Jaya province. The plant will have two trains each with a production capacity of 6 million tons a year.

BP Indonesia vice president for government relations and public affairs Satya W. Yudha has said that the company would begin the construction of the plant in July.

The Tangguh project, which will be supplied by massive gas fields in Muturi, Wiriagar and Berau, also in Papua, has secured a contract of 1.3 million tons of LNG per year from the Phillipines' energy company GNPower.

Indonesia is currently the largest LNG exporter in the world with exports of more than 23 million tons annually to Japan, South Korea and Taiwan.

According to data issued by the Director General for Oil and Gas at the Ministry of Energy and Mineral Resources, Indonesia's LNG exports dropped by 11.5 percent 23.9 million tons in 2001, partly due to a decline in the production of the Arun LNG plant in Aceh. LNG exports to main buyers Japan and South Korea fell 6.7 percent and 33 percent respectively.

Indonesia's natural gas production also fell 3.2 percent in 2001 to 2.8 trillion standard cubic feet (TCF) per day. The state owned oil and gas company Pertamina estimates that the natural gas production will increase to 3.2 trillion TCF in line with the growing demand from home and overseas.

The world's LNG market has rapidly expanded in recent years due to growing concerns for the need to use less polluting energy as well as due to fuel diversification programs.

According to the United States-based Energy Information Administration, the world's natural gas consumption in 2020 is projected to nearly double the 1999 total of 84 trillion cubic feet, and its share of the total energy consumption is expected to increase by 23 percent to 28 percent in the same period.

The growth of natural gas consumption in developing countries is expected to be significantly greater than in the rest of the world.

The developing countries in Asia are expected to contribute 19 percent of the increase in the world gas demand from 1999 to 2020, the EIA says in its International Energy Outlook 2002.

In China, natural gas consumption also continues to increase. Although the share of the natural gas is only about three percent of the country's energy consumption, the growth of its use is rising. According to EIA, the country's natural gas consumption is expected to rise by 10.1 percent a year from 1999 to 2020. Its share in the country's energy consumption is also projected to increase to 9 percent.

Environmental concerns in China are prompting movement toward gas and away from coal and oil. This has encouraged the development of gas supply facilities.

In South Korea, natural gas demand is expected to grow by 6.6 percent per year from 1999 to 2020. The country, which at present relies on LNG imports from Indonesia to meet the local natural gas demand, also indicates a continued increase in the natural gas consumption in the residential and industrial sectors as well as power generation.

In Japan the natural gas consumption, as estimated by EIA, will increase by 1.7 percent from 1999 to 2020, well below the average of 2.4 percent per year for industrialized countries as a whole and the 3.2 percent annual average projected for world growth in natural gas use.