Philippines to import Indonesian LNG as Malampaya competitor

Nov. 7, 2001
GNPower, a private power generator based in Manila, has signed a letter of intent to buy LNG from the Tangguh joint LNG project held by Pertamina and BP PLC unit BP Indonesia. The Indonesian project will supplement gas from the Shell-operated Malampaya gas project recently brought on stream off the Philippines.

By the OGJ Online Staff

HOUSTON, Nov. 7 -- GNPower, a private power generator based in Manila, has signed a letter of intent to buy LNG from the Tangguh joint LNG project held by Pertamina and BP PLC unit BP Indonesia.

GNPower is involved in the Quezon power project near the capital.

The signing of the LOI comes only a month after Shell Philippines Exploration BV delivered first gas from its Malampaya project in the Philippines, creating a natural gas industry in the islands for the first time.

At the inauguration of the Malampaya project, the country's President Gloria Marcapagal-Arroyo announced that natural gas would play a major role in the development of the country and gave a first hint that LNG imports would be considered to supplement gas from Malampaya.

Malampaya still has the capacity to supply new customers, and the decision to import LNG will, inevitably, become a factor in price negotiations which are going on at present with potential buyers.

The launch of the Malampaya project immediately cut 52% from the Philippines' annual fuel import bill.

The president also announced that all onshore gas projects will be deregulated, and the country's power station network will shortly be partially privatized -- with the condition that new investors commit to converting from oil-burning to gas. She also announced that next year the government will start on a program to convert all public transport in the country to run on compressed natural gas.

However, the president said that her new policies will depend on price negotiations with Shell and any other gas producers who emerge.

The present price Shell will get for gas from Malampaya has been agreed between the company, the state, and the power station operators who will buy it, but the 20-year contracts are regarded as confidential.

GNPower is not involved in contracts with Shell, which is providing gas for three power stations with a combined output of 2,700 Mw.

In a statement issued Wednesday, Pertamina said that the LOI provides for an exclusive period for Pertamina and GNPower to negotiate the supply of LNG from Tangguh field, thus enabling GNPower to respond fully to any Independent Power Producer (IPP) opportunities for that company.

The details of the LOI remain confidential at this stage, and negotiations on landing facilities in the Philippines have yet to move beyond initial discussions.

The statement added that the company is very pleased with the first LOI, which marks the confidence of an experienced IPP developer in the ability of Tangguh to deliver competitive long-term supplies of LNG.

BP Indonesia said that it also welcomes the LOI and pledges to continue to work with Pertamina to quickly secure similar agreements for other opportunities the parties are pursuing.

BP said future customers will see the commitment of the Indonesian Government, Pertamina, and the province of Irian Jaya (Papua), along with BP and its partners, to successfully develop Tangguh.

The government of Indonesia views the agreement as an important breakthrough for Tangguh, which they consider strategically important for the country. LNG is an important part of Indonesia's future energy business.

The Tangguh LNG project is particularly important because Indonesia's Arun LNG resources are approaching maturity. Tangguh will be able to significantly replenish the country's marketable LNG reserves.

The Tangguh LNG project is operated by Pertamina and BP Indonesia in Berau Bay, Irian Jaya (Papua).

Production will be piped from three fields to the plant, which will be able to produce 7 million tonnes/year of LNG from two initial processing trains. The Tangguh gas fields contain 18.3 tcf of independently certified proved and probable natural gas reserves, with an additional 5.4 tcf of possible reserves already identified. The Tangguh project is on schedule to be on-stream in 2006.

A BP spokesman said Wednesday," We are confident that a 2-train launch, costing about $2 billion, will be sanctioned next year. Ultimately, Tangguh could justify four trains, and peak production with four trains would be over 2000 MMcf. Field life will be over 30 years. Subject to successful marketing and purchasing commitments, start-up is planned for 2006."

Tangguh consists of three offshore production-sharing contracts (PSC) and the planned onshore LNG terminal. Pertamina will own the terminal, which will be operated by a company jointly owned by Pertamina and the PSC parties.

The first PSC involves the Wiriagar field, where BP is the operator with 80% of the field, and Kanematsu Corp. of Japan holds 20%. The second is the Berau field, where BP is the operator with a 48% share, Mitsubishi Corp. holds 22.856%, Nippon Oil Exploration Bureau Ltd. 17.144%, and Kanematsu 12%. The third field is Mutur, where operator BG Group PLC holds 50%, BP 45%, and Nissho Iwai Corp. 5%.

The shares of proved reserves in the Tangguh project derived from these PSCs are BP 50%, Mitsubishi 16%, Nippon 12%, BG 11%, Kanematsu 10%, and Nissho Iwai 1%.

The gas fields were discovered by Atlantic Richfield Corp. (ARCO) in 1997, prior to its acquisition by BP, on a separate structure 30 miles southwest of previous ARCO discoveries off Irian Jaya in eastern Indonesia. The discovery well, located in 63 ft of water in Berau Bay, flowed at a combined rate of 45 MMcfd from four drillstem tests in Jurassic and Paleocene-age sandstone formations.

The well produced from the same geologic formations that produced a series of exploration successes in eastern Indonesia for ARCO and its then coventurers in the Berau and Wiriagar PSCs.