Malaysia signs $9-billion LNG supply deal with Taiwan

Malaysia signs $9-billion LNG supply deal with Taiwan

KUALA LUMPUR (AFP): National oil company Petronas secured its biggest deal yet yesterday with a US$9-billion contract to supply liquefied natural gas (LNG) to Taiwan, officials said.

Through its unit Malaysia LNG Sdn. Bhd.(MLNG), Petronas will supply gas to the Chinese Petroleum Corp. (CPC) for the next 20 years. Indonesia is Taiwan's sole supplier at present.

"Malaysia will become the second supplier of LNG to Taiwan and CPC will be fulfilling its objective of diversifying its sources of LNG supply," said Azizan Zainul Abidin, chairman of Petronas and MLNG.

Under the deal, Malaysia will ship 2.25 million tons of LNG annually to Taiwan, about 60 percent of its present demand, said Azizan.

Based on current LNG prices, the agreement is worth $450 million a year, or $9 billion for the duration of the contract.

The first cargo is scheduled to be sent on May 19, officials said.

The LNG will come from the country's second largest LNG plant, LNG Dua. The plant is a joint-venture between Petronas, which holds a 60 percent controlling stake, Shell 15 percent, Mitsubishi Corp. 15 percent and Malaysia's eastern Sarawak state 10 percent.

With the Taiwanese contract, Petronas has sold all its expected production from LNG Dua, said Hassan Marican, Petronas' president and chief executive officer.

Future contracts will derive from its third plant, LNG Tiga, which is set to come onstream in 2000, he said.

Azizan signed the sale and purchase agreement on behalf of Petronas while CPC was represented by its chairman Tzu Yuan Chang.

Price

Meanwhile, Azizan dismissed a call by an international oil expert for LNG producers to band together to push up LNG prices.

"Unless buyers work together with sellers, we will not achieve higher prices," said Azizan, who favored talks between customers and suppliers instead.

Subroto, former secretary general of the Organization of Petroleum Exporting Countries (OPEC), was reported yesterday as saying here that LNG producers should form a "loose consultative grouping" to devise a new pricing system, independent of the highly volatile prices of crude oil.

"It is fairly obvious that the producers, especially those from Southeast Asia, should make an attempt to moot such an organization," Subroto said, adding that the proposed body need not be a cartel.

But Azizan rejected the idea of a producers' organization, saying he preferred to work with buyers to convince them it was in their interests to keep LNG prices high enough to finance future plants.

He said buyers should understand that low LNG prices would deter future exploration and investment in new LNG plants, leading to a possible "crunch" as current LNG supplies ran out.

Demand for LNG in the Asia Pacific region alone is expected to almost double by the turn of the century, from 46 million tons per annum to 70-80 mtpa by 2000, officials said.

Azizan reiterated that LNG prices should not be linked with oil as LNG production costs were much higher. Based on current prices, only expansion projects are viable.

"We have used various forums to highlight that the present price is inadequate to attract new investment," he said, adding that shortages would not be easily overcome because of the long lead time needed to build new LNG plants.