Fri, 18 May 2001

Pertamina may amend LNG deals on buyers' request

JAKARTA (JP): State oil and gas company Pertamina said on Thursday that it was ready to amend its existing liquefied natural gas (LNG) contracts to meet buyers' wishes, provided that they agree to purchase more LNG.

President Baihaki Hakim said that all of Pertamina's LNG buyers have asked for cheaper LNG prices, shorter contractual period.

Pertamina would agree to amend the existing contracts "as long as it would result in a win-win deal," he said, adding that in exchange for changes in the contracts, Pertamina would ask its customers to buy a larger amount of LNG.

"(For instance), we will ask for their commitment to purchase Tangguh," he said, referring to the planned Tangguh LNG project in Irian Jaya, owned by a consortium led by Anglo-American energy firm Beyond Petroleum (BP).

Pertamina's traditional LNG buyers are Japan, South Korea, Taiwan. The company is also planning LNG sales to China and India.

Indonesia, the world's largest LNG exporter, has dominated the region's LNG market for decades, but competition has tightened with the entry of new producers, like Qatar and Malaysia. This has also strengthened the bargaining power of LNG buyers.

Baihaki said requests by buyers for more flexibility and lower LNG prices indicated the greater bargaining power of buyers.

He said that for future LNG projects, Pertamina must heed market demands for flexibility in their contracts.

"We must be really responsive, no more take it or leave it," he added.

Most of Pertamina's LNG contracts last for about 20 years but the company recently said it was ready to shorten the contract period to between 10 and 15 years or less.

The company further said it might offer incentives to buyers, such as a more favorable transportation scheme.

The shipment of Indonesian LNG has been controlled by Humpuss Intermoda Transportasi for some time now, which is linked to former President Soeharto's son Hutomo Mandala Putra. Many LNG buyers have not yet had the chance to gain revenue from the shipment of LNG.

Baihaki said he recently offered Korea Gas Corp. (Kogas) a number of opportunities while discussing prospects of new LNG deals.

"I have asked Kogas to join us in building a refinery, why not, we could also cooperate in shipping (the LNG), there are plenty of business opportunities," Baihaki said.

"We have to be creative to involve them," he added.

Pertamina has long been known as a reliable LNG supplier, though the recent suspension of its Arun gas fields in Aceh has tarnished that reputation.

Gas fields at Arun have remained closed since mid-March, after its operator, American oil and gas giant PT ExxonMobil Oil Indonesia Inc, abandoned their fields due to continuous harassment by local rebels.

The move caused the nearby Arun LNG plant to run out of its natural gas supply, thus halting LNG exports to South Korea and Japan.

Baihaki said the two countries had inquired when ExxonMobil could resume its Arun operation, though neither of them had plans to end their contracts with Pertamina.

He was responding to reports that Kogas had threatened to seek new LNG suppliers if Pertamina was still unable to set a date for Arun's operation by the end of this month.

Baihaki said it's unlikely that Kogas would sign new LNG contracts just to cover a shortage in the near future.

"A contract now means delivery for the year 2004 or 2005," he explained.(bkm)