RI may lower LNG price for Korean buyer
RI may lower LNG price for Korean buyer
Fitri Wulandari, Jakarta
The Oil and Gas Upstream Regulatory Agency (BP Migas) signaled
on Tuesday that Indonesia was ready to sell its liquefied natural
gas (LNG) at a discounted price to maintain customer loyalty amid
tougher competition in the market.
BP Migas head Rachmat Sudibyo said Indonesia might offer a
discount of up to 40 percent to South Korean firm Korea Gas Corp.
(Kogas), should the firm agreed to extend its contract for
another 20 years.
"We shall consider it (offering the discount). The length of
contract will make the price more competitive," Rachmat said on
Tuesday.
He said the discount was part of a marketing strategy to win
customer loyalty amid tougher competition from new LNG producers
such as Australia and Qatar.
The discount is possible as higher crude prices will increase
LNG prices, he said.
LNG contracts typically last for about 15 years, but buyers
now prefer to cut the contract period to about five years to
secure greater flexibility to adjusting to changes in the market.
Furthermore, LNG contracts normally link the LNG price to the oil
price, increasing or decreasing along with it.
Under the current contract, which expires in 2007, Kogas will
buy LNG from the Arun LNG plant in Aceh at a rate of 2.3 million
tons per annum.
BP Migas said Kogas was seeking to buy 500,000 tons to 1
million tons of LNG per year for a short-term contract of five
years to seven years when the existing contract expires.
In an interview with Bloomberg, deputy head of BP Migas
Kardaya Warnika said Kogas currently paid US$4.50 to $5 per
million British thermal units (MMBTU) from the Arun LNG plant.
Kogas is seeking to buy at a price of $3 per MMBTU.
Kogas said it might consider BP Migas' proposal when the
company starts negotiations with potential suppliers in the
second half of this year.
"We are looking at several possibilities, and signing a new
contract with Indonesia on new terms could be an option," Oh
Seung Hwan, a manager with Korea Gas' LNG purchase team said, as
quoted by Bloomberg.
Korea Gas would prefer a 20-year supply contract, Oh said.
Indonesia is one of the largest LNG exporters in the world. It
has two LNG plants, located respectively in Bontang, East
Kalimantan, and Arun, Aceh, with a combined capacity of 31
million tons per annum.
South Korea and Taiwan are respectively the second- and third-
largest LNG markets for Indonesia after Japan. LNG exports to
South Korea and Taiwan account for 19 percent and 13 percent
respectively of total exports of 27 million tons per annum. The
bulk of LNG exports goes to Japan.