Indonesia and China sign Fujian LNG contract

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.