Page 2 of
2 Tapping a gas gusher in
Indonesia By Bill Guerin
Armand, president of Total’s
Indonesian unit Total E&P Indonesie, has said
the company expects to start producing 400 million
cubic feet natural gas a day, at peak levels, from
two new fields in East Kalimantan by the end of
this year, to offset lower outputs.
Questionable
commitments Shortfalls in export supplies
have been met on occasion by spot market purchases
as contractual commitments to traditional
markets in Japan, South Korea
and Taiwan have been threatened by local
shortages. Most of these contracts, supplied from
the Bontang and Badak fields, are due to expire in
2010. With no new additional gas sources due to
come on stream, these contracts will likely not be
extended. And senior energy officials’ attitude to
these still valid contracts raises questions about
the government’s future commitment to LNG export
markets.
Purnomo has been reported saying
in the past that if current contracts to these
traditional buyers can not be renegotiated in
terms of supply volumes that Indonesia should seek
out LNG supplies from other countries for resale
to these buyers to meet projected shortfalls in
2007, 2008 and 2009. The idea that Indonesia,
until recently the world's biggest LNG exporter
and with several standing long-term contractual
commitments, should aim to play a broker's role,
some analysts say, sends a mixed signal to large
volume LNG buyers in the region.
Pertamina, at least, continues to move
forward with its ambiguous support for boosting
supply to both domestic and overseas markets. Last
month the state-owned concern secured a 25%
interest in a Qatar onshore oil block, which will
be operated by Germany's Wintershall, and which
Pertamina will invest $11 million as part of a
total $47 million exploration budget.
The
Tangguh project could still face problems back in
Jakarta, however. The House of Representatives has
set up a special team made up of members of the
Supreme Audit Agency, legislators and government
officials to look into its contracted LNG prices
amid claims that the average $3.5 per MMBTU
(metric million British thermal units) prices are
far lower than the domestic gas price. Purnomo has
been quoted in local media as saying that this is
just a free on board (FOB) price, while delivered
prices can be as much as $7 to $9 per MMBTU.
Indonesia's LNG contract prices have
always been pegged to a maximum oil price ceiling.
The current administration of president Susilo
Bambang Yudhoyono has already renegotiated Tangguh
contract prices with two big Korean buyers to a
reported $3 to $3.5 per MMBTU, on the basis that
crude oil prices have more than trebled since the
original contracts were signed. Similar reviews of
contract prices with US-based Sempra Energy
resulted in a new price of just under $6 per
MMBTU, according to industry sources.
Even
the contract with CNOOC, which when brokered
seemed etched in stone, was last year renegotiated
to a price level of $3.35 per MMBTU, according to
local media. Purnomo indicated in September 2002
that the Fujian price was worth $21 billion over
25 years, although the contract prices at the time
were lower than US$3 per MMBTU.
CNOOC,
meanwhile, is locked in a contract dispute of a
different kind after being sued in June by
Canada's major oil-and-gas producers Talisman
Energy Inc, which has claimed right to a 44%
participating share of CNOOC's interest in Tangguh
through Talisman's Fortuna Resources. Talisman
claims CNOOC failed to offer it this share,
conferred under its rights to assets in the
Indonesian American Petroleum Company drawn up
almost four decades ago, and Warrior International
Corp, which eventually through acquisitions became
to be known as Talisman.
CNOOC has filed a
counterclaim against another Talisman unit,
Paladin Resources, and the suit is expected to be
heard in March next year. It’s still unclear if
those legal troubles will impact on CNOOC’s future
commitment to funding Tengguh. CNOOC has recently
said it will buy 25 million tons of LNG annually
by 2010 to help meet China's huge and growing
energy demand. At the same time, Indonesia's other
traditional buyers are busy chasing new LNG
contracts in Indonesia.
For instance,
Japan plans a major LNG-related investment on
Sulawesi island, where Mitsubishi, along with
Pertamina and publicly listed Medco Energi, plan
to build a new $1 billion LNG plant. The plant’s
total output of 2 million tons per year will be
exported to Japan, according to the terms of an
agreement signed in August by then Japanese prime
minister Shinzo Abe during a three-day visit to
Indonesia. Construction will begin in mid-2008 and
is expected to be completed by 2010.
South
Korea is currently the world's biggest LNG
importer and now takes annually around 5 million
tons of the fuel from Indonesia. It’s state-owned
Korea Gas Corp (KOGAS) announced in April this
year that it would buy LNG from Tangguh if
expansion were to go ahead. This was agreed to
during a visit by a high-powered South Korean
business delegation, of which senior KOGAS
officials said they were looking to invest in
upstream activities in the Natuna field in the
South China Sea and other areas of the country.
Bill Guerin, a Jakarta
correspondent for Asia Times Online since 2000,
has been in Indonesia for more than 20 years,
mostly in journalism and editorial positions. He
specializes in Indonesian political, business and
economic analysis, and hosts a weekly television
political talk show, Face to Face, broadcast on
two Indonesia-based satellite channels. He can be
reached at softsell@prima.net.id.
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