Indonesia seeks higher price for LNG exports

Indonesia, which confirmed that the BP-led Tangguh LNG project is now 93% complete, is considering delays to first cargoes to China and South Korea in an effort to renegotiate existing price agreements.

Eric Watkins
Senior Correspondent

LOS ANGELES, July 17 -- Indonesia, which confirmed that the BP-led Tangguh LNG project is now 93% complete, is considering delays to first cargoes to China and South Korea in an effort to renegotiate existing price agreements.

"We are renegotiating the price with LNG buyers from China and South Korea, said Edi Purwanto, deputy chief of BP Migas, the country's upstream oil and gas regulator. "We want a better price from what we have now. We want to change the pricing formula.

"If we cannot agree on a new price, then we might delay delivery from Tangguh," he said. "If needed, we are willing to pay a penalty until a new price has been agreed."

Last week, Purwanto said the selling price of LNG from Tangguh should be raised in accordance with prevailing international rates, saying that the crude oil price in the world market has risen to $150/bbl.

Tangguh already has contracts to supply 3.5 million tonnes/year to Sempra Energy, 2.6 million tonnes/year to China's CNOOC, and 1.1 million tonnes/year to South Korean buyers K-Power and Posco.

However, the price agreed upon with CNOOC when the 2002 contract was signed was $2.4/million btu based on the crude oil price of $25/bbl. Industry sources now say Indonesia wants the price to be at least the same as agreed with Japan in March.

At that time, Indonesia and Japanese buyers agreed on a price increase along with the extension of LNG contracts that were due to expire in 2010-11. According to Pertamina, the price at that time was about $16/million btu, based on crude oil prices of $100/bbl.

News of the demand for price renegotiations coincided with reports that the Tangguh plant is 93% complete and on track to meet its 2008 production target.

"After we finish the checking, it will start producing LNG by the end of this year as scheduled," said BP Migas spokesman Amir Hamzah. However, he said the government and some of the project's foreign buyers had yet to reach an agreement on the selling price of LNG produced at the plant.

"We're negotiating for the most lucrative price, thanks to the global oil prices," he said, adding that this would help the government acquire more revenue.

Niko Karen, executive vice-president of human resources and relations at BP, said he hoped the price agreement could be reached immediately. "I expect the negotiation to be done quickly so that it will not delay our plan to export the LNG in the first quarter of next year," said Karen.

BP-led Tangguh is expected to produce 7.6 million tonnes/year from two trains at the project, about 3,000 km east of Jakarta.

Project operator is BP Berau Ltd, the local unit of BP Group, which also owns a 37.16% stake in the project. The other owners are China's CNOOC 16.9%, MI Berau 16.30%, Nippon Oil Exploration of Japan 12.23%, KG Berau 10%, and LNG Japan Corp 7.35%.

Contact Eric Watkins at hippalus@yahoo.com

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