Mitsubishi makes bid for Donggi-Senoro LNG plant

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 8 -- Mitsubishi Corp. is ready to provide as much as $2.5 billion for the construction of an LNG plant to be built near Donggi and Senoro natural gas fields in Indonesia’s Central Sulawesi province.

Yorihiko Kojima, Mitsubishi’s chief executive officer, made the financial commitment to the long-stalled project during a meeting with Indonesia’s Vice-President Boediono, and he expected that Indonesia would finally approve construction of the facility according to initial proposals.

Under the initial plans, Mitsubishi would hold a 51% stake in the plant, producing LNG for Japanese buyers. But a spokesman said Jakarta has still not decided whether the LNG project would be developed under the initial plans or through a new mechanism.

“The vice-president and ministers are still studying the project. The vice-president will wait for a report from ministers and will inform the public and stakeholders once this study is finished,” said the spokesman, who made no mention of a timetable.

Under the initial agreement, Mitsubishi will hold a 51% stake in PT Donggi Senoro LNG, the joint venture firm which will build and operate the LNG plant. Indonesia’s state-owned PT Pertamina will hold 29%, and PT Medco Energy International will hold the remaining 20%.

The Japan Bank for International Cooperation was to finance part of the $3.4 billion project, assuming that the LNG would be exported to Japan for use by Kansai Electric Power Co. and Chubu Power Co. Inc.—each receiving 1 million tonnes/year of LNG for 12 years, starting from 2012.

However, the project stalled after Indonesia’s former Vice-President Jusuf Kalla said gas from Donggi and Senoro fields—which was supposed to feed the LNG plant—should be sold domestically instead of to Japan.
As a result, Kansai Electric dropped its plan to buy the LNG, which in turned delayed the project as Pertamina and Medco could not find local buyers with sufficient funds to finance construction of the facility.

The failure to find local buyers undermined Jakarta’s earlier optimism.

“If I am part of the consortium, I will find domestic buyers who can purchase gas with an economical price, said Minister for Energy and Mineral Resources Purnomo Yusgiantoro. He added that Pertamina and Medco don’t have to be worried about buyers (OGJ Online, Aug. 10, 2009).

Still, according to analyst IHS Global Insight, Jakarta will likely want to reach a compromise solution with Mitsubishi, with the majority of supplies going to Japan and a portion left for the domestic market to counter domestic criticism.

Contact Eric Watkins at hippalus@yahoo.com.

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