KoGas to pay record prices for LNG from Tangguh

Eric Watkins
Senior Correspondent

LOS ANGELES, July 28 -- Indonesian officials said Korea Gas Corp. (KoGas), bowing to threats of delays, has agreed to purchase LNG from the Tangguh project at a record price of $20/MMbtu.

"We haven't signed a legal document yet, but we have agreed on the price," said Eddy Purwanto, deputy of operations for the country's upstream regulatory agency, BPMigas.

Purwanto said the price was the highest of any existing gas field in the country, including Arun and Bontang.

Purwanto said the amount of LNG to be purchased by Kogas was still under negotiation, but that purchases would begin during 2010-12. He said the price is based on the Japan Crude Cocktail (JCC) oil price of $120/bbl.

Eddy said the Kogas LNG was originally intended for Sempra Energy LNG Corp., which signed a sales and purchase agreement for 3.7 million tonnes/year of LNG. Under terms of that agreement, however, Tannguh operator BP PLC may divert as much as 50% of the LNG designated for Sempra to other markets.

Eddy said the diversion was part of efforts of government and BP to obtain better LNG prices and to increase the total value of the Tangguh project.

Eddy said the Sempra diversion would increase the average price of LNG from Tangguh to $8.21/MMbtu up from $5.76/MMbtu before the diversion. He said the diversion would potentially increase the contract value of the Tangguh project by $19.7 billion.

Meanwhile, Eddy confirmed that the Indonesian government is renegotiating the LNG price with China and South Korea, and he warned again that, "If we cannot manage to complete this by the end of this year, we will probably postpone the Tangguh's LNG shipments."

Earlier this month Eddy said that his country was considering delays to first cargoes to China and South Korea in an effort to renegotiate existing price agreements. "If we cannot agree on a new price, then we might delay delivery from Tangguh," he said (OGJ Online, July 17, 2008).

Contact Eric Watkins at hippalus@yahoo.com.

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