Page 1 of
2 Tapping a gas gusher in
Indonesia By Bill Guerin
JAKARTA – After a series of environmental,
funding and supply contract problems, surging
regional demand has given new impetus to
Indonesia's US$6.5 billion Tangguh liquefied
natural gas (LNG) project, which with 14 trillion
cubic feet of proven reserves represents one of
the largest gas fields in all Asia.
Energy
Minister Purnomo Yusgiantoro said last week that
the first LNG deliveries from the plant are now
expected to start by the end of next year. The gas
will help China, the second biggest
investor in the ambitious
project, to meet its surging energy demand while
at the same time tap a valuable new fuel source to
power Indonesia’s domestic economy.
The
announcement comes amid surging global LNG prices,
which have more than doubled over the past three
years. The initial output of the two planned LNG
production lines, or trains, as they are known in
industry parlance, will be a combined 7.6 million
metric tons per year, an output that has been
fully contracted for the next 25 years.
The gas will flow from two unmanned
offshore production platforms through sub-sea
pipelines to an LNG processing facility on the
Papua mainland. From there, super-cooled gas will
be exported from a tanker terminal directly to
buyers, including a contracted 2.6 million tons to
an LNG terminal on the coast of the southeastern
Chinese province of Fujian. Another 3.7 million
tons is scheduled to be sent to Sempra Energy's
Baja California terminal on the western coast of
Mexico as well as 1.1 million metric tons to South
Korea to supply steelmaker Posco and SK Power.
Industry analysts note that previous
upbeat announcements about bringing Tangguh on
line have been followed by delays rather than
actual production. A supposed final decision to go
ahead with the project came in March 2005, when
LNG exports were predicted to start flowing in
2007. That timetable wasn’t met due to funding and
supply contract problems.
The project's
operator and biggest investor with a 37% stake is
Anglo-American energy giant BP and is run through
its local Indonesian unit, BP Indonesia, and in
partnership with state-owned energy company
Pertamina. State-owned China National Offshore Oil
Corp (CNOOC) has nearly 17% and several Japanese
oil companies and trading houses hold the
remaining equity. Earlier this month Kanematsu
Corp announced the sale of 10% of its total stake
in Tangguh to affiliates of Nippon Oil and Mitsui.
Nippon Oil's stake in Tangguh will rise slightly
from 12.2%, to 13.5%, while Mitsui and Mitsubishi
will now hold just under 10% each.
Amid
the shifting ownership, the cost of the project
has rocketed from an estimated US$2 billion in
2002 to more than $5 billion at present. The $3.5
billion funding target was finally met in August
this year, when BP announced it had secured an
extra $884 million in funds from banks in China,
Japan and Europe. The $2.6 billion of funding
secured earlier included $1.2 billion from the
Japan Bank for International Cooperation, $1.1
billion secured from several other funding sources
and $350 million from the Asian Development Bank
(ADB).
The China factor China is
boosting its use of gas for power generation and
industry with an eye on reducing it’s current
reliance on coal. The country's first ever deal to
import foreign-produced LNG, a 3.3 million ton per
year tender for southern Guangdong province, went
in August 2002 to a consortium led by Australian
energy giant Woodside Petroleum Ltd.
The
loss of this supply tender was at the time a major
blow to BP and Pertamina because they had jointly
planned to start shipping gas from Tangguh to
Guangdong in early 2006 and could not start the
plant until the majority of its output had been
contracted. The powerful Golkar political party
slammed then president Megawati Sukarnoputri's
administration for what it deemed poor judgment in
sending a delegation led by her husband, Taufik
Kiemas, to Beijing to lobby for the Guangdong
contract.
CNOOC first purchased a 12.5%
share in Tangguh from BP for US$275 million in
February 2003. Shortly thereafter, it was
announced that Tangguh had been awarded China’s
second major LNG import deal, the 25-year supply
contract to an LNG terminal in Fujian province.
The deal was negotiated by Indonesia's oil and gas
regulator BP Migas and Pertamina.
Some
industry analysts speculate that efficiently
tapping Tangguh could return Indonesia to its
position as the world's leading LNG exporter, a
claim it lost to Qatar in only recently. Pertamina
pioneered and dominated the regional LNG market
for over 25 years, until its monopoly on marketing
LNG overseas was lost in 2001. The state entity
then changed tack, when in 2002 then president
director Baihaki Hakim urged a refocus on LNG
production for the domestic market to avoid future
scarcities.
Indonesia is the Asia
Pacific's only Organization of the Petroleum
Exporting Countries (OPEC) member, yet has much
larger reserves of natural gas than oil. The
government is developing the domestic gas market
to move away from its current reliance on its
depleting oil reserves as the country’s main
energy source. In that direction, legislation
enacted in 2004 mandated that 25% of domestic
oil-and-gas must be sold to local markets.
At the end of last year, Indonesia had
total reserves of some 93 trillion cubic feet of
recoverable natural gas, according to BP
statistics. But much of its natural gas is
exported by major foreign producers under
production sharing contracts (PSC). Total,
Indonesia's biggest gas producer, for example,
pumps around 2.6 billion cubic feet of gas a day
from two separate fields, most of which supplies
the Bontang LNG plant in East Kalimantan.
Exports from the country’s other LNG
liquefaction plants, in Arun and Bontang, have
steadily declined as the dwindling production from
aging fields was diverted to meet local demand.
Phillipe
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
