Indonesia seeking higher price for LNG exports

In an effort to obtain higher prices for its LNG exported from Tangguh in Papua New Guinea, Indonesia wants to renegotiate LNG contract terms with South Korea.

Eric Watkins
Senior Correspondent

LOS ANGELES, Mar. 6 -- In an effort to obtain higher prices for its LNG exported from Tangguh in Papua New Guinea, Indonesia Energy and Mineral Resources Minister Purnomo Yusgiantoro said the country wants to renegotiate LNG contract terms with South Korean buyers and is seeking to divert to Japan supplies contracted for the US West Coast.

Purnomo told a meeting of the Indonesian House of Representatives that the government is seeking to increase the LNG selling price to South Korea's SK Power and to steelmaker Posco.

Under original contracts due to start in 2008, Tangguh is to supply SK Power with 550,000 tonnes/year for 20 years at $3.50/Mcf and Posco with 550,000 tonnes/year over 20 years at $3.36/Mcf.

Purnomo did not state by how much Indonesia was seeking to raise the price, saying the matter was still under discussion. The original agreements were based on a maximum oil price of $25/bbl, and Indonesia will attempt to raise the price based on a new benchmark as it did last year with China.

Indonesia in 2006 increased the selling price of Tangguh LNG to China's CNOOC to $3.35/Mcf by renegotiating the original contract, using a new maximum oil price of 38/bbl. The original contract, under which the Tangguh plant will supply 2.6 million tonnes/year of LNG for 20 years to generate power in Fujian province, set the price at $2.60/Mcf.

Purnomo said Indonesia was planning to talk to Sempra Energy Corp., San Diego, with which it had agreed to deliver 3.7 million tonnes/year of gas from Tangguh for 20 years at $5.90/Mcf.

Although Purnomo said the renegotiating plan had less to do with price than the government's wish to reallocate some of the LNG supplies to Japan instead of Sempra, he added, "We have the chance to get higher prices from Japan."

A clause in the contract with Sempra allows either of the parties to allocate some of the LNG shipments to a third party as long as the new contract benefits all parties, Purnomo said. The government has not determined the percentage to be reallocated, he said.

Contact Eric Watkins at hippalus@yahoo.com.

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