SK, POSCO to sign gas sales contract next week
SK, POSCO to sign gas sales contract next week
Fitri Wulandari, The Jakarta Post, Jakarta
The country's oil and gas upstream authority, BP Migas, is set
to sign basic agreements with South Korea's SK and Posco for the
supply of liquefied natural gas (LNG) from the Tangguh LNG plant
in Papua.
BP Migas is expected to sign the so-called "heads of
agreement" with SK on Aug. 11 in Bali and with Posco on Aug. 14
in Seoul, Minister of Energy and Mineral Resources Purnomo
Yusgiantoro said on Thursday.
A head of agreement, which is signed prior to a contract,
contains principles of an agreement. The details of the agreement
will be spelled out in a contract.
"The head of agreements contains principles that will be
contained in the future sales and purchase agreements," Purnomo
told reporters on Thursday.
SK will use the LNG for its power plant, while Posco will use
it for its steel production.
On July 25, the Tangguh LNG plant won a tender to supply 1.5
million tons of LNG per annum to SK and POSCO for a period of 20
years. The contract will reportedly generate US$5 billion in
revenue throughout the contract period.
The contract is expected to encourage the owner of the Tangguh
project to soon develop the country's third LNG plant.
Located in Berau Bintuni Bay, Papua, the Tangguh LNG project
is owned by a consortium led by Anglo-American energy giant BP
PLC. The consortium has found 14.4 trillion cubic feet (TCF) of
proven gas reserves in the area around the planned project.
With an additional order of 1.5 million tons of LNG per annum
from the South Korean firms, Tangguh has now secured a total
order of 4.1 million tons per annum. Previously, it had clinched
a deal with China's Fujian province to supply 2.6 million tons
per annum.
Before winning the South Korean contracts, Tangguh failed to
secure contract with China's Guangdong province and with Taiwan's
power firm Taipower. This raised speculations that BP could
postpone the development of the project.
The development of Tangguh LNG trains is scheduled to kick off
next year while the first shipment of LNG is expected to come in
2007. The BP-led consortium will build two LNG trains worth $2.2
billion with the combined capacity of seven million tons per
year.
Purnomo added the government and the country's natural gas
producers were now seeking to extend the existing contracts or to
secure more contracts with buyers in South Korea, which is one of
Indonesia's traditional buyers.
For instance, they are in talks with Kogas to extent its
contract, which will expire in 2007.
"We are negotiating with Kogas, both by carrying out
government to government and business to business approach,"
Purnomo said.
Apart from Kogas, Purnomo said, talks with South Korea's Kepco
were still continuing.
Purnomo said Kepco has showed an interest in buying one
million tons of LNG per year in return for the company's planned
investment in the power sector. However, Purnomo said Kepco
demanded that state power firm PT PLN would buy Kepco's power.
Purnomo said the government wanted to make sure that the power
to be sold by Kepco was not higher than the value of gas sales to
avoid making a loss.
Amid the increasingly competitive LNG market, Indonesia is
still the world's largest LNG producers with a production
capacity of more than 30 million tons per year.
RI's volume and value of LNG exports
Year Volume Value
(MMBTU)* (million)
1998 1,384,698 $3,047,940
1999 1,511,209 $4,207,312
2000 1,400,027 $6,753,611
2001 1,221,696 $5,268,327
2002 1,376,594 $5,664,685
* MMBTU = million British thermal unit
Source: Indonesian Financial Statistics, Bank Indonesia June 2003