Japan LNG buyers want $100m price cut in contracts

JAKARTA (JP): Japanese buyers of Indonesian liquefied natural gas (LNG) have asked state oil and gas company Pertamina to slash their contracted LNG prices by US$100 million a year, a Pertamina executive said on Tuesday.

Pertamina president Baihaki Hakim said the request came from LNG buyers in the western half of Japan.

"We told them (the LNG buyers) to show some patience, that we first have to consult with the House (House of Representatives)," Baihaki told reporters after a hearing with House Commission VIII for energy affairs.

Baihaki himself was against a price cut, saying Indonesia was in no position to lose revenue.

He said that calls for lower LNG prices required consultation with legislators given the impact it would have on the state budget.

The government is already running on a tight budget, trimmed by soaring spending costs from the rupiah's sharp depreciation and higher interest payments on government bonds.

"If a contract has been signed, both sides should respect it," Baihaki added.

But earlier this month, he said Pertamina might amend its existing LNG contracts. According to him, all of Pertamina's LNG buyers have demanded cheaper LNG prices and shorter contractual periods.

Baihaki has said Pertamina was ready to meet their demands, providing buyers agreed to purchase more LNG from Pertamina.

Among buyers in western Japan, he said, was Osaka, which has signed with Pertamina a 10-year contract ending 2010, for the purchase of 1.3 million tons of LNG a year.

Another western Japan buyer is Kansai, which has a 20-year contract ending 2003 for the purchase of 910,000 tons of LNG a year from Pertamina.

Pertamina's traditional LNG buyers are Japan, South Korea, Taiwan. The company is also eyeing new markets in India and China.

By the year 2010, Pertamina expects Asia Pacific's LNG annual demand to reach between 97.6 million to 139 million tons, up from current levels of around 70 million tons.

However, as LNG demand grows, so does supply with the emergence of new LNG producers, among them Malaysia, Brunei and Qatar.

As yet, Indonesia remains the world's largest LNG exporter with an almost flawless reputation as a reliable supplier.

However, the suspension of gas operation at the Arun fields in Aceh has somewhat tarnished Pertamina's good name.

Arun's operator, American-based oil and gas giant PT ExxonMobil Oil Indonesian Inc, pulled out from Arun in March following security concerned caused by local rebel forces.

The incident stopped LNG shipments from the nearby Arun LNG plant to Korea and Japan. At present Pertamina is able to cover the supply shortage from its East Kalimantan-based Bontang LNG plant.

Bontang's LNG excess reserves, however, will last only until June after which Korea and Japan must seek supplies from other LNG producers.

Elsewhere, Baihaki hinted that Pertamina might have to prepare $400 million if it planned to acquire a 20 percent stake in the Cepu oil block in East and Central Java.

"The entire project is worth around $2 billion ... we're looking at a stake of around 20 percent," he said, adding that Pertamina wanted more than 20 percent of Cepu if possible.

"If we can get more, why not," he said.

The Cepu block is wholly owned by ExxonMobil, which operates the block through its subsidiary Cepu Mobil Limited.

The block holds proven reserves of about 250 million barrels, and is estimated to produce some 100,000 barrels per day (bpd) of oil by the year 2004. (bkm)