Hoping for big fortune from China's LNG imports

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.