Indonesia and China sign Fujian LNG contract

Fitri Wulandari and Johannes Simbolon, The Jakarta Post, Jakarta

State oil and gas company Pertamina and Chinese energy giant China National Offshore Oil Corporation (CNOOC) signed here on Thursday a contract to supply US$8.5 billion worth of liquefied natural gas (LNG) to Fujian province from the planned Tangguh LNG plant in Papua.

The sales and purchase agreement will pave the way for Anglo- American energy firm BP PLC and its consortium partners to soon develop the $2 billion Tangguh LNG plant project that has been in limbo for years due to the absence of committed buyers.

BP and partners will build two LNG trains with the combined capacity of seven million tons per year. The excess capacity will be sold to other buyers outside China, including 1.5 million tons per year to the Philippines National Oil Corporation.

The Fujian contract alone will generate $8.5 billion in sales revenue throughout the contract period of 25 years, while the two trains are expected to generate a total of $21 billion over the period, according to Minister of Energy and Mineral Resources Purnomo Yusgiantoro.

The revenue will be shared by the central government, regional governments in Papua and BP and its consortium partners.

Under the production sharing contract, BP and its consortium partners will keep 30 percent of all revenue and give the remaining 70 percent to the government. Under the Intergovernmental Fiscal Balance Law No. 25/1999, the central government has to hand over 30 percent of its revenue to the Papua province.

Analysts say Papua will receive about $1 billion in revenue from the Fujian contract alone throughout the contract period and the province's revenue would rise to $3 billion if the plant runs at full capacity.

The revenue will significantly boost the province's financial capability to develop the welfare of its people, who remain the country's poorest.

About 3,000 Papuans will be employed at the project during the construction phase, while during its operation, the plant will have 1,000 Papuan workers, according to Papua's governor Jaap P. Solossa.

"The project will bring about an extraordinary impact on Papua and Indonesia," Solossa stated at the palace, while accompanying Purnomo, Pertamina's officials and the Chinese delegation led by Zhang Peiyan, the chairman of China's State Development Planning Council (SPDC), to report the signing of the contract to President Megawati Soekarnoputri.

The contract was signed by Pertamina's president Baihaki Hakim and CNOOC's president Wei Liucheng at the ministry after the visit to the palace.

Indonesia initially was hoping to win the LNG supply contract for China's more-developed province of Guangdong, but last month, the Chinese government decided to award the contract to an Australian consortium. Indonesia was awarded with the Fujian supply contract.

Although an Australian company won the Guangdong supply contract, China has yet to officially sign a sales and purchase agreement with the company.

China is a new market for LNG, lagging behind Japan, South Korea and Taiwan, which have been using the energy source for decades. But, the world's most populous nation is considered to be the leading market in the future given its rapid economic development.

CNOOC will start building an LNG terminal in 2004, while the first LNG supply from Tangguh is expected to arrive in Fujian by 2007. The supply will amount to 2.6 million tons per year.

"The Tangguh LNG project will become Indonesia's third LNG facility and will strengthen Indonesia's position as the largest producer and exporter of LNG in the world," Rachmat Sudibyo, the chairman of the country's oil and gas upstream authority BP Migas, said.

The Tangguh LNG project is located at Berau Bintuni Bay, which contains 14.4 trillion cubic feet of proven gas reserves. BP has 50 percent of the reserves with the balance shared by Mitsubishi (16 percent), Nippon Oil Exploration (12 percent), British Gas (11 percent), Kanematsu Corp. (10 percent) and LNG Japan (1 percent).

Under the deal, CNOOC will take a 12.5 percent stake in the gas fields, but talks are still in progress to decide whose stake will be acquired by CNOOC.