Pertamina may offer short-term LNG contracts

JAKARTA (JP): State-owned oil and gas company Pertamina might offer short-term liquefied natural gas (LNG) contracts in a move to raise the company's competitiveness in a tight market, an executive at Pertamina said on Friday.

Pertamina's director for general affairs, Sjahrial Daud, said that the company would consider offering five to 10 year short- term LNG contracts to its traditional markets in Japan, Korea and Taiwan.

According to him, the three markets are seeking a greater degree of flexibility in their future LNG contracts which long- term contracts of 20 years and above cannot offer.

"We must be responsive to demands for short-term contracts, otherwise we will lose out against our competitors," Sjahrial told reporters at a press meeting.

He said that dropping gas demand during the economic crisis had hurt the power sector in its traditional markets, as the amount of gas they were committed to import exceeded its demand.

Sjahrial said that Japan, Korea and Taiwan had since become more careful in signing new contracts with LNG exporters like Indonesia.

"They do not want to become committed with long-term contracts as they fear that they will become over-committed," Sjahrial explained.

Short term contracts, he continued, offered these three countries better flexibility in dealing with times of uncertainties.

He added that neither of them had made a formal request for a short-term contract during the negotiations.

Yet Pertamina must adopt itself to a more demanding market and tighter competition, he said.

"It is not a seller's market as it once was when Indonesia started to export its gas. This is a buyer's market now," he said.

Pertamina's LNG export is now facing growing competition from its neighbors Malaysia and Australia. Another emerging competitor is Qatar, whose cheap LNG prices can offset the relative high transportation costs to the East Asian markets.

Sjahrial said that Pertamina's current contracts with Japan, Taiwan and Korea would end in 2017.

He went on to say that none of the three countries were willing to pay a higher price for the flexibility that a short- term contract could offer.

"On the contrary, they asked us what we had to offer as compensation for switching from coal to gas," he explained.

Sjahrial said that Pertamina had already signed two short-term contracts of five and 10 years to Japan in the mid 1990's.

But he added that the short-term LNG contracts came from marginal gas fields, located in Arun, Aceh and in Bontang in East Kalimantan.

"The consideration back then was that our gas reserves were unable to meet a long-term contract," he explained.

Sjahrial said that a short-term contract for LNG plants which were already operating, such those in Arun and Bontang was acceptable.

"But for a green field investment like the Tangguh project, the conditions are different," he said.

The construction of the Tangguh project in Irian Jaya remains delayed, despite its huge gas reserves of about 14.4 trillion cubic feed (tcf).

Finding a long-term buyer is a prerequisite for Tangguh's construction.

"For a project like Tangguh, the shortest contract we can give might be only for 10 years," he said.

At present, he said, Pertamina and its production sharing partners had no intention to offer short-term gas contracts for the Tangguh project.

The project is being jointly developed by Pertamina and its partner Beyond Petroleum (BP).

Pertamina is currently seeking to supply China's power plants with 3 million tons of LNG from the Tangguh LNG plant.

Sjahrial said that BP had joined a tender in China for the construction of an LNG receiving terminal, the supply of which could come from the Tangguh project.

The project is being jointly developed by Pertamina and its partner Beyond Petroleum (BP).

Indonesia is the world largest LNG exporter with 1998 sales of 26.35 million tons of LNG, followed by Algeria with 18.2 million tons and Malaysia with 14.2 million tons.

Based on Pertamina data, Indonesia's gas production this year is estimated to slightly decline to 6.9 billion cubic feet per day (bscf) from 7.1 bscf in 1999. (bkm)