Tangguh LNG supplier BP, scores coup in U.S.
Johannes Simbolon, The Jakarta Post, Jakarta
Anglo-American energy giant BP Plc. has signed a multibillion dollar agreement with U.S.-based Sempra Energy to supply liquefied natural gas (LNG) to the United States' West Coast and Mexico.
The preliminary contract was signed on Thursday in Washington in a ceremony involving Minister of Energy and Mineral Resources Purnomo Yusgiantoro, U.S. energy minister Spencer Abraham and Mexican energy minister Felipe Calderon Hinojosa.
The deal with Sempra will give a significant boost to BP's Tangguh project in Papua, where the LNG supplies will be taken from. Until recently, the project was in limbo given the reluctance of creditors to provide funds for the project due to the small number of orders it had received.
The deal will also provide significant revenue for Indonesia and, particularly Papua, one of the least developed regions of the country.
The entry of Indonesian LNG producers into the U.S., the world's largest consumer, will also boost Indonesia's profile as the world's largest LNG exporter, a status that was just a few months ago clouded by its failure to win some high-profile contracts.
"This is very good news for Indonesia because it marks the beginning of our entry into the U.S. (LNG) market, which will be a key market in the future," Purnomo was quoted by Antara as saying.
BP outbid LNG producers from Australia, Malaysia, Brunei Darussalam and Qatar in competing for the LNG contract.
Under the deal, BP will supply some 3.7 million tons of LNG per year to Sempra starting in 2007 and 20 years beyond that. This will generate a total revenue of $10 billion for the country, according to Purnomo.
Under the production-sharing contract, the central government will take 70 percent of Tangguh's after-tax revenue, while Papua will take 70 percent of the central government's revenue, according Papua's autonomy law.
Last year, BP secured a contract to supply 2.6 million tons per year to China's Fujian province. In August this year, the firm signed initial contracts to supply a combined 1.5 million tons per year to South Korean companies SK and Posco. SK will use the LNG for its power plants, while Posco will use it in steel production.
The deal with Sempra will bring the total orders for Tangguh LNG to 7.8 million tons -- higher than the plant's initially planned capacity.
It remains unclear whether BP will need to expand the capacity of its Tangguh project due to the larger-than-expected volume of orders.
The Tangguh LNG project will become the country's third LNG plant after the Bontang (East Kalimantan) and Arun (Aceh) facilities. Arun and Bontang have a combined installed capacity of 31.6 million tons per year.