Tangguh wins S. Korea gas tender

Tangguh wins S. Korea gas tender

Riyadi Suparno, The Jakarta Post, Yogyakarta

After losing its bid to supply gas to Taiwan and China's
Guangdong province, Indonesia's Tangguh liquefied natural gas
(LNG) producer on Friday won a tender to supply 1.5 million tons
of LNG per annum to South Korea's SK and POSCO for a period of 20
years.

SK plans to use LNG from Tangguh to produce electricity, while
POSCO will use it for steel processing facilities, said Minister
of Energy and Mineral Resources Purnomo Yusgiantoro.

"Just this afternoon, they announced that we won the tender.
After this, we will make the sales purchase agreement. But, the
most important thing is that we won the tender," Purnomo told The
Jakarta Post after officially closing a two-day meeting of
production sharing contractors in Yogyakarta.

Purnomo said that Tangguh beat competitors from a number of
countries without sacrificing prices.

"We cannot announce the price yet. It's not below our Fujian
price... and also not lower than our domestic price," Purnomo
said.

Purnomo was referring to China's province of Fujian, which
awarded Tangguh a contract last year.

LNG to Fujian is sold at US$2.45 per million British thermal
unit (MMBTU). As for domestic use, it is between $1.33 per MMBTU
and $2.45 per MMBTU.

The contract will reportedly generate $5 billion in revenue
throughout the contract period.

Located in Berau Bintuni Bay, Papua, the Tangguh LNG project,
the country's third LNG plant 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 demand of 1.5 million tons of LNG per
annum, Tangguh has now secured a total demand of 4.1 million tons
per annum. Previously, Tangguh had clinched a deal with China's
Fujian province to supply 2.6 million tons per annum.

"Tangguh now has enough secured demand. Thus it must build the
LNG plant now. I will tell BP (Beyond Petroleum) that it must
build the terminal this year," he stressed.

The BP-led consortium will build two LNG trains worth $2.2
billion with the combined capacity of seven million tons per
year.

Development of LNG trains is scheduled to kick off next year
while gas is due to be piped out around 2007.

Last year, it lost the tender to supply LNG to China's
province of Guangdong, but it won the Fujian contract. Recently,
it failed to win the tender to supply LNG Taiwan's Taipower,
raising doubts whether the plant could actually be developed.

It also raises doubts over Indonesia's ability to compete in
the increasingly competitive LNG market and prompted the
government to look toward the domestic market.

Indonesia is still the world's largest LNG producers with a
production capacity of more than 30 million tons per year. All
the LNG goes for export. But now, it has met new rival producers
such as Malaysia, Australia, Qatar and Oman who also have been
aggressively approaching Japan, South Korea and Taiwan. The three
are not only Asia's biggest buyers but also Indonesia's
traditional buyers.

Just one day before winning the South Korea LNG tender,
Indonesia signed a memorandum of understanding with Marathon Oil
Corp. to market LNG to the U.S. and Mexico.

Indonesia will supply 6 to 10 million metric tons of LNG a
year, under the MOU.

Purnomo said the company is studying several options,
including the possibility of getting the LNG supply from Tangguh.

"So, there is no reason for BP not to build an LNG terminal in
Tangguh because the prospects are there," Purnomo said.

"We should also learn from Malaysia's experience in which they
built Malaysia's third LNG supply terminal even before securing a
contract. This gives added value in marketing their LNG,"

Separately in Jakarta, Iin Arifin Takhyan, director general of
oil and gas said on Friday that the MOU with Marathon also
included the possibility of establishing a joint venture with
Indonesian state-owned firm Pertamina to build a receiving
terminal in Baja, Mexico and to develop gas fields in Doggi,
Sulawesi, partly owned by Pertamina.

"There will be a series of negotiations between Marathon,
Pertamina and (upstream authority) BP Migas about the MOU," Iin
said.