Faisal Abda'Oe, president of Pertamina, has spelled out Indonesia's concern over links between world oil and gas prices.
Low gas prices are particularly expected to hit Indonesia's liquefied natural gas prospects, a key component of the country's exports, Abda'Oe told the World Gas Conference last week in Milan.
"For the LNG trade, the good old days are over," he said. "While the original LNG projects were not exactly easy to implement, they were negotiated in a much more favorable economic environment with respect to crude prices and project costs.
"Historically, the price of LNG has been linked to crude oil, and it is doubtful if that linkage will be changed significantly in future. Demand for new supplies of LNG cannot be met, however, at the equivalent current trade prices."
NONCOMPETITIVE LNG
Abda'Oe said none of the world's current list of 12 prospective grassroots LNG projects can offer LNG at prices competitive with today's oil prices.
Indonesia's objectives in LNG are to extend existing export contracts and to increase exports through development of uncommitted gas reserves.
Three LNG contracts with Japanese buyers will expire by 2005, while contracts with Korea Gas Corp. and Chinese Petroleum Corp. will expire by 2010.
"Indonesia has sufficient gas reserves not only to support extensions of these contracts but also to help meet the increased demand that is forecast in the LNG market,' Abda'Oe said.
Yet all LNG demand predictions during the past 3-4 years show the same trend: Pacific Basin demand for LNG will continue to grow.
"Current consumption is approaching 50 million metric tons/year. Estimates go as high as the need for twice this quantity by 2010," Abda'Oe said.
"Whatever assumptions are used concerning the long term market potential for LNG, it is dear that the challenges of replacing current commitments through the extension of existing contracts, most of which expire by 2017, as well as provide for expansion of the market, are enormous."
Abda'Oe warned that while LNG demand continues to grow, costs for exploration and development of frontier gas reserves and construction of LNG plants and ships also grow, "Current rule of thumb estimates are that it costs $1 billion to develop 1 million metric tons/year of LNG production, This does not include the costs of the ships to transport the LNG," he said.
FUNDS FOR JNOC
Japan National Oil Co. was thought likely by Abda'Oe to be provided low cost funding by the Japanese government for future LNG projects. However, he voiced concern that the money would be raised by taxing existing LNG supplies.
"LNG suppliers will be somewhat concerned that these new taxes, if imposed, will have a negative impact on potential LNG demand growth in Japan," Abda'Oe said.
"This potential equity involvement of JNOC in future LNG projects is encouraging nonetheless, as this is an opportunity for established and potential new LNG suppliers to explore new ways of increasing future project viability."
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