Indonesia's Medco signs LNG deal with Chubu, Kansai

Reuters, Fri Mar 13, 2009 3:08am EDT  

JAKARTA, March 13 (Reuters) - Indonesia's PT Medco Energi International Tbk (MEDC.JK) has signed a head of agreement to supply a total of 2 million tonnes a year of liquefied natural gas to two Japanese buyers, a company official said on Friday. 

Under the agreement, Medco will sell 1 million tonnes of LNG from the Donggi-Senoro LNG plant on Sulawesi island to both Chubu Electric Power Co (9502.T) and Kansai Electric (9503.T), Medco director Lukman Mahfoedz told reporters. 

"We signed the agreement in February. The contract will run for 15 years," Mahfoedz said without giving details on prices. 

In August last year, state oil firm Pertamina, Medco and Japan's Mitsubishi Corp. (8058.T) signed a natural gas supply agreement for the LNG plant in Sulawesi island. 

The three firms signed an agreement in August 2007 to build the $1.4 billion Donggi-Senoro LNG plant, which will have a capacity of 2 million tonnes per year. 

The plant is expected to be operational by 2012 or 2013. 

Medco expected the government to approve the LNG plant by the end of this month, Mahfoedz said, warning the project would be delayed if approval was not forthcoming. 

"We hope to get the government approval so that we can execute the final investment decision. Otherwise, there will be a delay and we will miss a window (of opportunity)," Mahfoedz said. 

The project has been criticised by legislators for selling the natural gas to the LNG plant too cheaply. 

The plant should give LNG production in Indonesia, the world's third-biggest LNG exporter after Qatar and Malaysia, a much needed boost as the country struggles to juggle exports and local needs. 

The outlook for Indonesia's LNG exports has been put in doubt by plans to divert more of its production to domestic use at a time when its oil and gas output has been under pressure from ageing fields and lags in bringing new production onstream. 

The Southeast Asian country has failed to meet its contractual commitments to traditional markets such as Japan, South Korea and Taiwan due to a slump in production. 

Indonesia has far more gas than oil but it faces limited supplies due to long-term LNG export commitments, which it is reviewing. 

The country has about 182 trillion cubic feet of natural gas reserves. 

(Reporting by Muklis Ali; Writing by Fitri Wulandari; Editing by Ed Davies)