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.