RI to keep position as top LNG producer

Moch. N. Kurniawan and Novan Iman Santosa, The Jakarta Post, Nusa Dua, Bali

Indonesia must make concerted effort to maintain its position as the world's leading supplier of Liquefied Natural Gas (LNG) amid a buyer-dominated market due to abundant supplies.

"We must work hard together to find new buyers as the LNG market is changing from a sellers market to a buyers market as the supply is higher than the demand," Minister of Energy and Mineral Resources Purnomo Yusgiantoro, told participants of the Indonesian International Oil, Gas and Energy 2002 (IIOGE) conference at the Bali International Convention Center in Nusa Dua, Bali.

"Indonesia can no longer rely on old paradigms in selling its LNG."

Purnomo said Indonesia would try to maintain its traditional markets such as Japan, South Korea and Taiwan while at the same time keeping an eye on emerging markets such as the West Coast regions of the United States, China and India.

He added, that the main thing was that private gas producers, state-owned oil and gas company Pertamina and the government needed to work together in marketing and selling Indonesia's LNG.

Currently, Indonesia is the largest LNG producer in the world with a total production and exports of some 27 million tons, which comes from Arun in Aceh and Bontang in East Kalimantan.

All LNG production is exported to the major market: Japan, South Korea and Taiwan under long-term contracts of between 20 years and 30 years.

Indonesia receives billions of dollars in revenue every year from selling natural gas including LNG. Indonesia is developing its third LNG plant in Tangguh, Papua.

But as many other gas producing countries such as Malaysia, Australia and Qatar have aggressively entered the LNG market, the world's LNG supply has increased. Fierce competition has ensued among LNG suppliers giving LNG buyers the opportunity to choose the supplier.

Separately, state-owned oil company Pertamina upstream director Iin Arifin Takhyan admitted that Indonesia found more difficulty in marketing its LNG due to the shift in power from LNG supplier to buyer.

"Amid this fierce competition we must offer a competitive price. That's the key. Otherwise we'll be left behind by the other players," he told The Jakarta Post.

He cited Qatar as an example. With its huge gas reserves Qatar has been able to lower LNG production costs, making their gas cheaper than other countries, including Indonesia.

However, he said Indonesia had always tried to minimize its transportation costs in a bid to reduce its LNG price.

Iin also said that now buyers had the upper hand, they also wanted to purchase LNG for shorter contract periods of less than 10 years or at a spot market rather than binding themselves to 20 year and 30 year contracts, so that the buyers could choose lower LNG prices at any time.

"We must synchronize our LNG marketing strategy with this shift in direction," he said.

According to him, Indonesia hopes to create a new form of LNG cooperation with buyers, such as the supplier will build a receiving terminal in the buying country or build gas pipelines there to facilitate the distribution of the gas.

Purnomo said Indonesia was willing to export LNG to China and the U.S. as demand for LNG was increasing rapidly.

The U.S. West Coast, at present, gets its natural gas supply from Canada and the Gulf of Mexico but the sources are beginning to deplete. The price is climbing, according to him.

The price of natural gas in the Far East is about US$3.3 per million British Thermal Unit (MMBTU) while in the West Coast it is $4.5 per MMBTU.

"We have our eyes on the West Coast areas. If the gas price there reaches $4.5 per MMBTU we can enter the market," he said.

Purnomo said the Philippines might be a potential buyer for Indonesia's natural gas especially with the Trans ASEAN Gas Pipeline (TAGP) project.

"I have had talks with the Philippine energy minister about the possibility of distributing Indonesia natural gas there," he told the session.