RI told to change its LNG marketing strategy

RI told to change its LNG marketing strategy

Fitri Wulandari and Johannes Simbolon, The Jakarta Post, Jakarta

Indonesia should combine efforts to explore foreign and
domestic markets to absorb its huge liquefied natural gas (LNG)
output, an energy analyst said.

As far as overseas markets are concerned, Indonesia should
explore opportunities as far as the United States, rather than
focusing on regional markets such as Japan, Taiwan and South
Korea, which are Indonesia's traditional LNG buyers, the analyst,
Kurtubi, said.

He made the statement as the country's LNG industry is being
shaken by a string of bad news signaling Indonesia's loss of
domination in the regional LNG market.

The first blow was the decision by Japan's Tohoku Electric
Power Co. to cut its LNG import volumes from Indonesia, through a
long-term contract with state oil and gas company Pertamina, from
three million tons to 830,000 tons annually. The company has also
shortened the contract period, Dow Jones reported.

Then on Friday Taiwan's state-owned power plant Taiwan Power
Co., or Taipower, announced it had awarded a contract worth
US$8.6 billion to Taiwan's state-owned Chinese Petroleum Corp.
(CPP) to supply LNG to its Tatan power plant. CPP will take the
LNG from Qatar's Ras Laffan Natural Gas Co., or RasGas.

In the bidding process, CPP beat out among others United
Resources, which planned to source the LNG from Indonesia's
Tangguh LNG plant, which is being developed by a consortium led
by BP PLC, Dow Jones reported .

The regional LNG market, which has for decades been dominated
by Indonesia, has turned tougher following the entry of new
players such as Malaysia, Australia, Qatar and Russia.

Kurtubi said this new competition for the regional market
should prompt Indonesia to expand to the U.S.

"The U.S. is an enormous market for natural gas. This is what
the government should target," Kurtubi said in a recent interview
with The Jakarta Post.

Kurtubi said there was growing demand for natural gas in the
U.S., with the domestic gas supply and gas from Canada unable to
meet demand.

Anglo-American energy giant BP Plc., in its statistical World
Energy Review 2002, reported that U.S. natural gas consumption in
2002 increased by 3.9 percent. And Japan's Osaka Gas Co., as
cited by the International Herald Tribune, said gas demand in the
U.S. could increase by up to 7 percent by 2025 as domestic
natural gas production declined.

Kurtubi said the U.S. market was more than large enough to
absorb the LNG of the planned Tangguh plant, which will be the
country's third LNG plant.

Indonesia now has two LNG plants, located in Bontang and Arun,
which have a combined production capacity of 31.6 million tons.

Baihaki Hakim, Pertamina's president, agreed that the U.S. was
a potential market for Indonesia.

"The U.S. market will be our focus in the near future, aside
from maintaining our traditional buyers such as Japan and Korea.
The U.S. market is growing very fast and the price of LNG is
quite high in the region," Baihaki recently said at an energy
conference in Kuala Lumpur, as quoted by Bloomberg.

"We are trying to market Donggi to the U.S. west coast and so
far the response is good," he said, referring to an area in
Sulawesi where Pertamina has discovered huge gas reserves and
plans to build another LNG plant.

Both Baihaki and Kurtubi agreed that Japan, the world's
largest LNG importer, was still the most important market for
Indonesia.

"So far, Indonesia still has a good position in the eyes of
Japanese buyers. We are their traditional supplier," Baihaki
said.

Prior to a recent visit by President Megawati Soekarnoputri to
Japan, Indonesia's LNG industry players asked the President to
persuade Japanese buyers to extend their purchase contracts with
Bontang, which expire in 2010.

Apart from exploring non-traditional foreign markets, Kurtubi
said the government also should begin thinking more about the
domestic market.

"It is time for the government to pay more attention to the
domestic gas market because the demand is high. Moreover, the use
of natural gas can help generate other economic activities to
boost growth," Kurtubi said.

According to government data, Indonesia produces an average of
2.8 trillion cubic feet (tcf) of natural gas per day. Some 1.5
tcf is exported in the form of piped gas, LNG and liquefied
petroleum gas (LPG), with the remaining 1.3 tcf used for the
domestic market.

Ridwan Nyak Baik, a Pertamina spokesman, said that in the past
Indonesia focused on the export market for its LNG because it was
easy to sell in the region due to the limited number of
suppliers. Also, LNG could not compete with oil-based fuels in
the local market because of the government's subsidy policy.

"Now, as the competition in the regional LNG market has gotten
tougher and the government is gradually scrapping the fuel
subsidy, it is time to think about selling LNG in the local
market," Ridwan said.

In order to promote the use of LNG in the country,
particularly in Java where demand for the product is seen as
having great potential, the government should first invite
investors to build receiving terminals and deliquefaction
facilities, which would require a huge investment, he said.

"All of the facilities are very expensive. But they would
allow us to get an environmentally clean fuel and push the
development of our LNG projects," Ridwan said.