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Indonesia, China to renegotiate Tangguh LNG price

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 30 -- Indonesia has no plans to delay shipments of Tangguh LNG to CNOOC's Fujian terminal in China, despite an ongoing price renegotiation with Beijing. The shipments are scheduled to begin in first-quarter 2009.

"We must respect the contract," said Energy and Mineral Resources Minister Purnomo Yusgiantoro. "We are continuing negotiations, but as the negotiation has yet to reach an agreement, we must follow the contract," he said.

Purnomo's remarks followed an accord reached last week during a meeting in Beijing between visiting Indonesian President Susilo Bambang Yudhoyono and his Chinese counterpart Hu Jintao.

Hu agreed in August to renegotiate, and in early September, Yudhoyono issued a decree for the formation of Indonesia's technical team. The two leaders said their respective teams will meet soon to renegotiate the Tangguh LNG sales contract.

LNG price at issue
The selling price of Tangguh LNG to Fujian was agreed in 2002 as $2.40/MMbtu, based on a ceiling price of $25/bbl crude. In 2006, an agreement was reached to raise the price to $3.80/MMbtu, based on the ceiling price of crude at $38/bbl.

But even that price was considered too low considering that the price of LNG from Bontang, East Kalimantan, to Japan could reach $20/MMbtu in 2010, based on a ceiling price of crude at $110/bbl.

As international oil prices rose to record levels this year, Indonesia's concern grew, with hints of a delay in deliveries from the Tangguh project.

In mid-October, Purnomo told Indonesian state media that the first export of Tangguh LNG to Fujian, scheduled for yearend, might be delayed because Korea Gas Corp. had not completed construction of its LNG receiving terminals.

Tangguh LNG currently has contracts to supply 3.5 million tonnes/year to Sempra Energy, 2.6 million tonnes/year to CNOOC, and 1.1 million tonnes/year to South Korean buyers K-Power and POSCO.

Other agreements
Following this week's agreement in Beijing, Yudhoyono and Hu said the concessionary loan program China had initiated for Indonesia would continue despite the current global financial crisis.

Yudhoyono wants cooperation with China stepped up in the field of energy, especially in the construction of power plants under China's concessionary loan program.

Contact Eric Watkins at hippalus@yahoo.com.


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