Pertamina, Medco to supply gas for LNG plant

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Jan. 20 -- Indonesia's PT Pertamina and privately held PT Medco Energi International will sign a contract to supply natural gas from their jointly owned gas field in Sulawesi to a liquefaction plant to be built by PT Donggi Senoro, owned 51% by Mitsubishi Corp., 29% by Pertamina, and 20% by Medco.

Pertamina Vice-Pres. Iin Arifin Tahkyan said the two Indonesian firms will supply 2 million tonnes/year of gas from Donggi-Senoro field for 15 years starting in 2012.

The price will be set at $8/MMbtu if the price of oil is $50/bbl, according to another government official. If correct, the pricing differs from an earlier agreement among the partners.

"We signed heads of agreement on gas supply," said Medco director Lukman Mahfoedz in August. "The price of the gas is $12.50/MMbtu if crude prices are $120/bbl."

Gas production is being targeted at around 250 MMcfd, and all of the LNG exports from the facility are destined for Japan, with Kansai Electric Power and Sendai-based Tohoku Electric Power Co. the main purchasers.

Development of the project has proceeded in the face of numerous difficulties over the past several months.

In mid-December 2008, Medco said it would continue with its plan to build the LNG plant despite accusations leveled by PT LNG Energei Utama that Mitsubushi had violated the country's antimonopoly law.

At the time, Medco said the government had approved the analysis of the environmental impact license needed to implement the project.

Earlier, the provincial administration granted the license to PT LNG Energei Utama, which also had secured a license from the Banggai district administration to build an LNG project in that area.

In December, eyeing the growing world financial crisis, Medco gave assurances of its determination to bring the Senoro LNG project into operation in late 2012.

Medco president Lukman Mahfoedz told the OSEA2008 conference in Singapore that access to credit would remain tight until the second or third quarters of 2009 "at the earliest" and added that borrowing costs would be "high."

However, Lukman said that while borrowing hard currency "might be difficult" for the firm, the economic crisis could provide opportunities for local banks which, he said, have high levels of liquidity.

Contact Eric Watkins at hippalus@yahoo.com.

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