Asian firms intensify Indonesian LNG race

Asian oil and gas companies in China, Japan, and South Korea reportedly are "intensifying" a race for Indonesian LNG.

Eric Watkins
Senior Correspondent

LOS ANGELES, Aug. 22 -- Asian oil and gas companies in China, Japan, and South Korea reportedly are "intensifying" a race for Indonesian LNG.

The Nikkei Business Daily said that up until now, Japan has dominated the Indonesian LNG export market, one of the largest in the world, importing about 70% of the gas produced in the southeastern Asia nation.

But the paper warned that Japan appears to be losing its leading position, with China, South Korea, and other Asian countries rapidly boosting their LNG imports from Indonesia.

Indonesia now supplies 15 million tonnes/year of LNG to Japan, of which contracts for 12 million tonnes/year face renewal in 2010-11.

Shipments to Japan are expected to be substantially pared to 2-3 million tonnes/year, with the price jump likely about 50% to $15-16/million btu.

Japan must ensure a stable supply of LNG from Indonesia by securing gas field exploration rights in the manner of Chinese and Western companies. But the paper said Japan has fallen well behind them in securing such rights.

Detailing competition from other Asian nations, the Nikkei said a South Korean company has reached an agreement with Indonesia to import additional LNG, while PetroChina Co. is set to land a stake in the D Alpha development, Asia's biggest gas field.

Citing information from the Indonesian government, the paper reported that Korea Gas Corp. intends to import about 1 million tons of LNG produced at facilities now under construction in Tangguh, Papua Province, on the island of New Guinea.

Indonesia earlier planned to ship LNG from the Tangguh site to Sempra LNG when production starts in 2010. But the paper said Korea Gas agreed to pay a substantially higher price for the LNG, so the Indonesian government has decided to switch the export destination to South Korea from the US.

The Nikkei said shipments initially will cost $20/million btu, among the highest in the world, reflecting the more than 100% surge in LNG prices over the past 2 years along with skyrocketing crude oil prices, industry sources said.

Japan's power and gas utilities also negotiated with the Indonesian authorities over the purchase of Tangguh LNG, but the talks appeared to have broken down over price.

D Alpha gas field
Meanwhile, the Indonesian Ministry of Energy and Mineral Resources said PetroChina is seeking to become a partner of Indonesia's state-owned PT Pertamina in developing the D Alpha gas field, the biggest in Asia. The Chinese entity has already submitted an exploration plan to the Indonesian government.

In addition to PetroChina, Royal Dutch Shell PLC and Malaysian national oil company Petronas are also showing an interest in partnering with Pertamina in exploring the gas field, which is estimated to have 46 tcf of reserves.

The Nikkei report also noted that ExxonMobil Corp., which the Indonesian government had once authorized to develop the field, appears aiming to regain those rights.

In the 1990s, it said, the Indonesian government gave ExxonMobil a majority stake in the field, but later cancelled it when the US firm put development on hold, citing the huge costs involved due to the high carbon dioxide content and tough underwater location off an isolated island.

With the Indonesian government reportedly now saying that PetroChina has offered the most attractive terms for the project, the Chinese corporation appears to be the leading candidate to become Pertamina's partner.

Still, the Nikkei report suggested that Chinese involvement in the D Alpha project may not be a foregone conclusion.

It cited unnamed experts who believe it will be difficult for any firm except a Western oil major to successfully develop the field due to the need for sophisticated gas separation technology.

Contact Eric Watkins at hippalus@yahoo.com.

More in Companies