Indonesia faces tough competition for LPG sales

Indonesia faces tough competition for LPG sales

SINGAPORE (Reuter): Competition from Australia, Thailand and Malaysia is making it more difficult for Asia's key crude oil producer Indonesia to sell liquefied petroleum gas (LPG) to its traditional customers in 1996, trade sources said yesterday.

Poor response and low bids have led Indonesia's state oil company Pertamina to request bidders of its recent two-year term LPG export tender to re-submit their bids. The tender is for the sale of 130,000 tons of LPG, loading from Santan, Indonesia from January 1996.

"We expect freight costs for small ships to increase next year and therefore our bids have to be low enough to ensure profitability," said a Japanese bidder.

Indonesia had only received three bids for the tender from Japanese trading houses, Mitsui Corp, Marubeni Corp and Itochu Corp. Bids ranged from a discount of between US$28 and $60 per ton to the industry benchmark formula set by Saudi Arabia. Its previous contract was concluded at $3 per ton premium over the Saudi benchmark.

"We are intending to place the supplies into China and the price competition is tough there," the Japanese trader added.

Outside of the Middle East, Indonesia is Asia's largest LPG exporter, industry sources said.

Pertamina is also expected to issue a tender to sell up to 320,000 tons per year of LPG from its Arjuna oil field near the end of this year. The new volume, starting in January 1996, will be an increase from current term volume of 280,000 tons.

Asian LPG traders expressed skepticism that Pertamina would get a good price for the sales. "With the increased supplies in this region, Pertamina would have to contend with low prices or to reduce its market share," said the Japanese trader.

"We know that it is getting tougher these days and every producer is targeting the Japan market," said a Pertamina source. "China and India are potentially big importers but currently with their poor infrastructure, these countries' imports remain small compared with Japan."

Japan is the largest importer of LPG in Asia, buying close to 1.25 million tons per month. Two-thirds of its imports are from the Middle East.

Competition

"We are also faced with competition from Malaysia, Thailand and Australia," the Pertamina source added.

Malaysia had just finalized discussions with its term customers on sale of 480,000 tons per year of LPG starting in January.

Officials from Thailand's state-owned Petroleum Authority of Thailand (PTT) have said the company will be increasing its exports of LPG next year when two gas separation plants and two joint venture refineries come onstream by March 1996.

Partners of Australia's North West Shelf gas project have issued a tender, closing October 23, inviting bids for its first LPG sale. Supplies of up to 550,000 tons are expected to hit the market in the second half of 1996.

Indonesia's exports of close to 1.3 million tons a year of LPG from its Arun oil and gas field, and 800,000 tons a year from its Bontang field have been committed to seven Japanese buyers on a 10-year term contract. The contracts will expire in 1998.

These term holders are Mitsui Oil, Idemitsu Corp, Mitsubishi Corp, Nippon Petroleum Gas Company, Cosmo Oil, Japan Energy and Showa Shell.