Japanese LNG buyers allow talks to continue over Indonesian gas

Japanese companies aiming to purchase supplies from Indonesia’s Donggi-Senoro LNG plant in Central Sulawesi have extended the deadline for the consortium of companies developing the plant to negotiate prices and availability with the government.

Jun 24th, 2009

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 24 -- Japanese companies aiming to purchase supplies from Indonesia’s Donggi-Senoro LNG plant in Central Sulawesi have extended the deadline for the consortium of companies developing the plant to negotiate prices and availability with the government.

Chubu Electric Power and Kansai Electric Power granted the extra time after Indonesia’s Vice-President Jusuf Kalla last week said that gas from the Senoro and Matindok fields intended to supply the Donggi-Senoro plant must be sold on the domestic market and not internationally as planned.

“The extension was granted on the grounds of [state-owned PT] Pertamina’s reputation in supplying LNG to Japan,” said Lukman Mahfoedz, project director of consortium member Medco Energy, adding, “They requested [it to be done] as soon as possible.”

Lukman did not state how long the extension had been granted for, but Karen Agustiawan, Pertamina president director, told Indonesian parliamentarians that the Japanese buyers had extended the deadline for negotiations with the government until the end of June.

Lukman underlined the need for speed, however, saying that the project must come on stream in 2012-13: “We are competing with other LNG projects all over the world, which will commence at the same time.”

A heads of agreement between the consortium, comprised of Medco E&P, Pertamina, and Mitsubishi Corp., and the buyers was to have been completed by Mar. 31, but Jakarta has still to agree the price and availability of the gas.

Lukman said the consortium had proposed a price of $6.20/MMbtu, and an LNG price of $10.90/MMbtu, adding that both prices are higher than market rates. He also said the consortium had reserved 70 MMscfd of Donggi-Senoro gas for domestic use, leaving 335 MMscfd for export.

Earlier, the consortium partners said output from the project must be exported to ensure its economic viability, and that its export-oriented approach would be most beneficial for the country.

“We will convince the government that our scenario is still the best for the country. We will continue our dialogue with the government," Lukman said on June 19.

Meanwhile, Mitsubishi said June 22 it will continue with its involvement in the Donggi-Senoro project, despite the government’s ruling that all gas from the operation be sold on the domestic market.

“We are not in the position to provide comments on the government's remarks,” said a Mitsubishi spokesperson. “However, we will be continuously cooperating with the [other] partners of the project as well as the Indonesian government and upstream parties so that the FID (final investment decision) can be made at an early stage.”

Mitsubishi’s role in the project is considered vital to its financial success, a point underscored by Pertamina’s Agustiawan who last month told lawmakers that the firm’s majority stake is actually a requirement of the project’s potential financial backer, the Japan Bank for International Cooperation.

Earlier this month, Indonesian government business watchdog Komisi Pengawas Persaingan Usaha (KPPU) has cleared Mitsubishi of alleged unfair practices in the $1.4 billion Donggi-Senoro LNG project.

“Our internal clarification did not find enough evidence to prove that violations had occurred,” said KPPU Commissioner Didik Akhmadi, adding, “Therefore, the KPPU decided to close the report (OGJ Online, June 11, 2009).”

Mitsubishi now holds a 51% stake in the project, while Pertamina holds 29% and Medco 20%.

Contact Eric Watkins at hippalus@yahoo.com.

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