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.