Indonesia riles LNG buyers with supply disruption

Eric Watkins
Senior Correspondent

LOS ANGELES, Jan. 26 -- Indonesia's reputation as a reliable supplier of liquefied natural gas has come into question once again due to a new disruption of supply, even as the Southeast Asian nation seeks to ramp up production.

Indonesia's state-run PT Pertamina announced on Jan. 18 that it had decided to delay the shipment of 51 cargoes of LNG to buyers in Japan, South Korea, and Taiwan—the country's three largest LNG customers—this year.

The delay, which Pertamina blamed on a combination of a slight decline in gas output and a sudden need to reallocate the commodity to fertilizer producers, will cut export commitments from its Bontang plant in East Kalimantan to 335 shipments and 45 from its other plant at Arun in Aceh.

Ari Soemarno, senior vice-president, marketing and trading, shrugged off the delay, saying that the buyers were seeking fewer LNG shipments this year.

"Everything has been agreed upon in principal, and we just need to sign the agreements," Ari said in a press conference announcing the delays.

Buyer responds
But Japanese importers of LNG were not happy with the delays.

Indeed, Indonesia's move to delay the shipments would send a bad signal to investors and hurt the country's business competitiveness, a Japanese company affected by the decision warned.

Yasuo Ryoki, acting head of energy resources at Osaka Gas, said Indonesia's decision to the export shipments undermined the importance of the company's securing a supply commitment, which had been agreed to under a legitimate contract.

Speaking after delivering a speech at a gas conference in Jakarta on Jan. 19, Ryoki said supply sustainability was the most crucial factor for companies before they draw up a business plan, even more important than "for example, price competitiveness".

Still, Ryoki was quoted as seeking a better deal for Osaka due to the cutback in shipments. "Indonesia should offer LNG prices close to the price formula for Fujian," Bisnis Indonesia quoted Ryoki as saying.

"Our demand must be responded to, because we could also look at other producers," Ryoki threatened.

During his presentation, Ryoki also said Indonesia needed to improve the management of its gas industry, explaining that currently, it was unclear whether Pertamina or the Oil and Gas Implementing Body (BP Migas) had authority to deal with gas buyers.

"Indonesia needs to have a single entity to accommodate buyers' demand," he said. Most buyers didn't know to whom they could address problems, he said. While affirming that Osaka Gas remained willing to keep its operation in Indonesia, Ryoki asked for better management practices.

Despite having officially accepted the delay, the company, Ryoki said, did not want to see a repeat in the future. Osaka Gas, a long-term contract buyer of LNG from Indonesia, imports 6.4 million tonnes/year of LNG, including 1.7 million tonnes/year from Indonesia. Its contract with Indonesia will end in 2010.

Aside from Osaka Gas, other affected companies include Kansai Electric Power Co., Chubu Electric Power Co., Tokyo Gas Co., and Korea Gas Corp.

Indonesia's Koran Tempo daily newspaper reported that Indonesia exported 16.3 million tonnes of LNG to Japan in 2004, roughly 30% of Japan's LNG imports; 5.3 million tonnes to South Korea, 26% of its imports; and 4 million tonnes to Taiwan, 63% its imports.

Import for export
But Indonesia itself had to import much of that natural gas for onward sale to its customers in the Far East.

In June 2004, Indonesia was expected buy up to 30 LNG cargoes on the spot market in order to meet its contractual obligations because of disruptions to its domestic gas output.

Domestic unrest in the Aceh region had led to lower natural gas deliveries and output at the Arun LNG plant, while a fire at Unocal Corp.'s Attaka offshore gas field reduced deliveries to the Bontang plant in East Kalimantan during February.

Wood Mackenzie, Edinburgh, expected Pertamina to purchase as much as 1.5 million tonnes of LNG last year to cover existing gas contract shortfalls.

"Traditionally, Indonesia has been a key exporter of LNG, but in the last 2-3 years its position has fallen, firstly in meeting contractual supplies and secondly in its overall standing in the LNG market," said Wood Mackenzie's Gavin Law.

Tangguh delay
Meanwhile, construction of the Tangguh LNG plant in Papua may be further delayed, pending an agreement for the inclusion of the "government act" clause in the contract.

Ministry of Energy and Mineral Resources Director General of Oil and Gas Iin Arifin Takhyan told reporters recently that BP PLC, which leads the project consortium, would not sign the deal without a guarantee from the government.

The clause will stipulate that should there be a change of the administration's policies that causes the plant to be unable to fulfill its commitments, the government will pay the resulting penalties.

"If we don't give [the guarantee], they won't sign the contract," said Iin. The inclusion of such a clause in the principal of agreement (POA) would be uncommon, he said. "However, we have to create an attractive climate for them [investors]."

BP Indonesia Executive Vice-Pres. Gerald Peereboom told the Jakarta Post that government approvals were at this point the most critical elements for the project.

Indonesia relies heavily on Tangguh, its third LNG plant, to make up for declining production at its plants in Bontang and Arun, both of which have been operating for more than 20 years.

The Tangguh project will use gas from offshore fields with total reserves estimated at 14.4 tcf.

BP and partners will operate the fields under production sharing contracts from Pertamina: BP with 37.16%, MI Berau (Mitsubishi and Inpex) 16.3%, CNOOC Ltd. 16.96%, Nippon Oil 12.23%, KG Cos. (Kanematsu Corp., Japan National Oil Co., and Overseas Petroleum Corp.) 10%, and LNG Japan (Nisshi Iwai Corp. and Sumitomo Corp.) 7.35%.

Related Articles

Woodside lets contracts for Browse LNG project

07/06/2015 Woodside Petroleum Ltd. has let more contracts for the Browse floating LNG project offshore Western Australia. The contracts, awarded to a Technip-...

Emerging producers offered guidelines for governance

07/06/2015 Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done-especially where oil and gas never before...

Nelson-Farrar Quarterly Costimating Indexes for selected equipment items

07/06/2015 The Nelson-Farrar refinery construction index rose to 2,475.6 by December 2012 from 2,467.4 in January of the same year. The index continued to ris...

The price of oil and OPEC-history repeating?

07/06/2015 The world oil market today is characterized by a standoff between the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers a...

Newfoundland, Labrador prepare for deepwater exploration

07/06/2015 Canada-Newfoundland and Labrador Offshore Petroleum Board's (C-NLOPB) most recent call for bids for the Eastern Newfoundland Region is coming to a ...

Oman lets contract for Sohar refinery unit revamp

07/06/2015 Oman Oil Refineries & Petroleum Industries Co., has let a contract to MAN Diesel & Turbo SE, Augsburg, Germany, for work related to the ove...

Group suggests principles for Alberta royalty review

07/06/2015 The Canadian Association of Petroleum Producers (CAPP) has suggested that four principles guide Alberta in an oil and gas royalty review planned by...

Gas faces more competition from coal, renewables, IEA official says

07/06/2015 Natural gas faces growing competition from coal and renewable energy sources at a time when its potential demand growth is slowing down, an Interna...

Total unveils development sites for renamed Papua LNG project

07/06/2015 Total SA and its joint venture partners Oil Search Ltd. and InterOil have announced key infrastructure sites for development of the proposed Elk-An...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected