Migas names Pertamina to sell LNG to Japan

Fitri Wulandari and Indra Harsaputra, Jakarta/Surabaya

The Oil and Gas Implementing Body (BP Migas) has appointed state oil and gas firm PT Pertamina as the sole agent to market liquefied natural gas or LNG to Japan, Indonesia's largest LNG importer.

Rachmat Sudibyo, the head of BP Migas, said the agency was preparing proposals that would be tabled by Pertamina in its negotiation with Japanese buyers to extend contracts that are due in 2010.

The contracts cover the sale of a total of 12 million tons of Indonesian LNG per annum to Japan.

"The price of the LNG and the contracts scheme -- whether based on a quota or per-annum system -- will depend on the results of the negotiation between Pertamina and the Japanese buyers," Rachmat said in Surabaya last week.

Rachmat noted, however, the appointment of Pertamina as the sole LNG agent of the LNG market still needed approval from the country's LNG producers.

Indonesia, one of the world's largest LNG exporters, has two LNG plants -- located in Bontang, East Kalimantan and Arun, Aceh -- with a combined capacity of 31 million tons per annum.

Japan, Indonesia's largest LNG importer, absorbed 68 percent of Indonesia's total LNG exports of 27 million tons in 2002.

Indonesia has been intensively lobbying Japanese buyers to extend the contracts amid tougher challenges posed by countries such as Qatar, Australia and Malaysia.

Energy expert Kurtubi, who is also a Pertamina official, lauded BP Migas' move, while saying it was better for Pertamina to take over LNG marketing for all markets.

Kurtubi said with years of experience in marketing the fuel, Pertamina would be better able to approach buyers.

"In the LNG market, price is not the sole factor. Since most LNG contracts are long-term, buyers prefer to do business with parties they have already known," Kurtubi told The Jakarta Post over the weekend.

In the past, Pertamina was authorized by the law to market LNG produced by production-sharing contractors (PSC). However, with the introduction of Law No. 22/2001 on oil and gas, every PSC has the right to sell its LNG.

Kurtubi said leaving PSCs to sell their own LNG would not guarantee a maximum return for Indonesia as a whole, because PSCs had conflicting interests as they had overseas operations that might bid on the same market. The government takes about 70 percent of the proceeds from natural gas.

Kurtubi suggested Pertamina not only sell LNG, but also have a participating interest in the receiving terminal or the power plant that would use the LNG.

"It will increase Pertamina's bargaining power," he said.

No PSC officials were available for comments on Saturday. Although, previously, some PSC officials voiced opposition to any move to appoint Pertamina as the sole seller of Indonesian LNG, citing a possible conflict of interest. Rather than marketing other firms' LNG, the state-owned firm might sell the LNG from its planned project in central Sulawesi, they suggested.