Japan still expects to buy LNG from Donggi Senoro

Alfian , The Jakarta Post, Jakarta | Tue, 11/24/2009 1:09 PM

A high ranking official from Japan told reporters Monday that the world's largest LNG (liquefied natural gas) buyer still expects to get LNG supply from the much-debated Donggi Senoro project in Central Sulawesi.

"The project is very much important for both sides *Indonesia and Japan* and yes *we still hope to get LNG supply from the project*," Takayuki Ueda, Japan's director general for natural resources and energy said on the side lines of the 10th Indonesia-Japan Round Table in Jakarta.

Ueda added that he was optimistic about the project's LNG market prospects even though Kansai Electric Power Co. Inc. had dropped its plan to buy LNG from the project. "The project needs to find another customer, but since the project is very fruitful, I hope many companies would like to joint in this project," said Ueda, adding that he still expected the project to be on schedule despite the protracted ongoing negotiations.

The Donggi Senoro LNG plant is prepared to produce LNG from natural gas from Senoro and Matindok gas fields in Central Sulawesi. Japan intends to play a big role in the project as Mistubishi Corporation holds a controlling 51 percent share in PT Donggi Senoro LNG, a joint venture prepared to operate the LNG plant. State oil and gas company PT Pertamina holds a 29 percent participating stake in the venture, while PT Medco Energi Internasional holds the remaining 20 percent.

Japan had planned to play a significant role in project financing as the Japan Bank for International Cooperation (JBIC) was prepared to be the majority lender both for the upstream and downstream sides of the project, requiring about US$3.4 billion. But this was on the basis that the LNG would be exported to Japan to supply Japanese power companies.

The joint venture firm had therefore signed initial agreements for gas sales with two of Japan's leading power companies: Kansai and Chubu Power Co. Inc. Under the agreement, each company would have been supplied with 1 million tons of LNG per year from the plant for 12 years, starting from 2012.

But, the LNG project has been in limbo since at the end of the tenure of the last cabinet, the outgoing government, led by former Vice President Jusuf Kalla, decided the natural gas from the two blocks should go to the domestic market. This government decision led Japan's Kansai Electric Power Co. to drop its plan to buy the LNG from the project.

Now Medco and Pertamina are in talks with three potential domestic buyers: state power producer PT Perusahaan Listrik Negara (PLN), state power producer Pupuk Sriwijaya, and domestic ammonia producer Panca Amara Utama (PAU).

The developers are also in talks with several domestic banks, as JBIC will no longer provide loans if the gas is not intended to be processed as LNG for export purposes.

Last week, the domestic banks were supposed to propose how much they could finance the project. But, the director general for oil and gas Evita H. Legowo said the matter was still being discussed.