Indonesia gas shortfalls again affect US, Japan

March 28, 2008
Indonesia's reputation as a reliable supplier of LNG is once again coming into question.

Eric Watkins
Senior Correspondent

LOS ANGELES, Mar. 28 -- Indonesia's reputation as a reliable supplier of LNG is once again coming into question. Energy and Mineral Resources Minister Purnomo Yusgiantoro said Indonesia is considering a plan to reallocate some of the gas from the Tangguh block in Papua from US buyers either to meet obligations to Japan or to Thailand's PTT.

Natural gas being exported from Tangguh to the US is priced at $5.94/MMbtu under a 20-year contract, about $2/MMbtu less than the current global price of $8/MMbtu. According to state media, Indonesia's contract with the US buyer allows it to reallocate LNG to other markets on payment of a diversion fee.

Indonesia is Japan's largest LNG supplier, exporting some 12 million tonnes/year of LNG to the country on a contract basis.

However because production volumes are falling rapidly at Indonesia's main base in Bontang, East Kalimantan, Jakarta has shifted its export-oriented policy to focus on domestic demand. Last May, an official at state-run oil firm PT Pertamina said LNG exports from Bontang might fall to 3 million tpy at the time of Japan's contract renewal.

Indonesia more recently offered to accept a price proposal from Japan on LNG if Tokyo disregards Indonesia's failure to deliver 72 LNG cargoes under an existing contract.

Purnomo said the government is negotiating with Japan to extend the existing contract, which expires in 2010. He and representatives of upstream oil and gas regulator BPMigas are scheduled to fly to Japan Mar. 31 for further discussions. The deadline for a new contract comes in April.

Indonesia is proposing a price of more than $10/MMbtu, while Japan insists on a lower rate. Its existing 25-year contract binds the government to supply Japan with 12 million tpy of LNG at $8-9/MMbtu until 2010. Indonesia currently delivers LNG to Japan at $8/MMbtu.

Under the proposed extension, Indonesia agrees to export 3 million tonnes of LNG over 5 years to 2015 and to export 2 million tonnes in another 5-year period after 2015.

The situation recalls 2005 when a supply disruption prompted Pertamina to delay the shipment of 51 cargoes of LNG to buyers in Japan, South Korea, and Taiwan—the country's three largest LNG customers (OGJ Online, Feb. 11, 2005).

Contact Eric Watkins at [email protected].