RI may adjust LNG price formula

RI may adjust LNG price formula

Dow Jones/Jakarta

Indonesia has indicated it may adjust the formula that it uses
to price contracts to supply liquefied natural gas to Japanese
gas and power utilities, in a bid to keep their business.

At an energy forum in Tokyo on Friday, Minister of Energy and
Mineral Resources Purnomo Yusgiantoro said Indonesia in the years
ahead would be more flexible with its LNG supply contracts in
terms of the price formula.

Japanese buyers make up the bulk of the Southeast Asian
nation's LNG customers.

"More flexibility is required for LNG contracts. LNG supply
contracts should be win-win contracts," Katsuhiko Suetsugu,
secretary general of the Asia-Pacific Energy Forum, quoted
Purnomo as saying.

Delegates from Japanese power and gas utilities attending the
forum complained that Indonesian LNG prices are higher than those
from other countries, Suetsugu told reporters at a press briefing
after the event.

The formula for Indonesia's long-term LNG contracts with
Japanese buyers is linked to the average price of a basket of
Indonesian crude oils, comprising mainly medium-grade, low-sulfur
crude oil such as Minas crude, for which prices are higher than
those of high-sulfur crude oils from Middle East, for instance.

Many other LNG producers typically sign long-term supply
contracts with Japanese customers using a price formula linked to
the average price of Japan's overall crude oil imports, widely
known as the Japan Crude Cocktail, or JCC. The Japanese Ministry
of Finance publishes the JCC monthly.

In 2010 and 2011, many of Indonesia's long-term LNG supply
contracts with Japanese buyers will expire, with expiring
contractual volumes expected to total 12 million tons.

Indonesia exported 15.5 million tons of LNG to Japan in the
last fiscal year that ended March 31, 2004, indicating the
country accounts for the largest share, or 27 percent, of Japan's
overall LNG imports totaling 58 million tons.

Additionally, due to output problems at some of its gas
fields, Indonesia has been forced to import LNG for the past
several years. In fact, it has told several of its Japanese
buyers that it can't fully supply the contracted volumes this
year.

Delegates from Tokyo Electric Power Co. (9501.TO), Kansai
Electric Power Co. (9503.TO) and the Ministry of Economy, Trade
and Industry attended the energy forum.