Indonesia Eyes Gas Promised to Japan

Jakarta Globe, Reva Sasistiya & Bloomberg, May 07, 2010

A tanker being loaded with LNG at Bontang in Kalimantan. Domestic gas shortage may prompt to state to revise deals with Japan. (Bloomberg Photo)

As Indonesia continues to suffer from a shortage of liquefied natural gas, the government said on Friday that an existing contract to supply LNG from Central Kalimantan to Japanese buyers would likely be revised to enable more fuel to be allocated to the domestic market.

Energy Minister Darwin Zahedy Saleh said the government may alter the contract to provide Japanese buyers LNG from the Bontang project in Central Kalimantan.

“We’re able to revise the contract supply since the gas is our resource,” Darwin said. He acknowledged the possibility of penalties from buyers if Indonesia failed to meet its agreement, but he asked for understanding from Japanese companies. “We’re still considering it.”

The LNG contract from Bontang was signed on Feb. 13, 2009 between operators PT Pertamina, Total EP Indonesia and Inpex Corporation and six Japanese buyers: Chubu Electric Power; Kansai Electric Power Co.; Kyushu Electric Power; Nippon Steel; Osaka Gas and Toho Gas.

The agreement covers a 10-year period starting in 2011. For the first five years, three million tons a year would be allocated to the Japanese buyers with two million tons a year allocated for the second five years. Currently, Japanese buyers are taking 12 million tons a year from Bontang.

Raden Priyono, head of upstream oil and gas regulator BPMigas, said as the amount of Bontang gas exported to Japan would be lower next year, there would be excess output of 2.5 million tons.

“The gas will be allocated to the domestic market, but if the infrastructure is not ready, we will have to find another buyer.”

Currently, it’s estimated Indonesia is suffering from a 2.5 billion standard cubic feet of gas a day deficit.

Meanwhile, Evita Legowo, director general of oil and gas at the Ministry of Energy, said final government approval of the Donggi-Senoro LNG plant may not take place until near the end of the year, meaning the plant would now not be finished until 2014. The facility was originally supposed to be completed this year.

The plant is 51 percent owned by Japan’s Mitsubishi. Pertamina holds 29 percent and PT Medco Energi Internasional owns the rest.

At issue is who will be allowed to purchase the gas. In January 2009, the operating consortium agreed to supply one million tons of LNG annually to Chubu Electric Power and one million tons per year to Kansai Electric over 15 years.

But last July, then-Vice President Jusuf Kalla instructed the energy minister and Pertamina’s president director to allocate the gas to domestic buyers.

The fate of the gas has been unclear since then, with the government and the consortium partners at odds over whether the gas should be sold domestically, where it would bring a lower price, or on the international market.

One Japanese buyer pulled out in August and prospective buyers from Japan and South Korea this week threatened to walk away if the government didn’t decide soon how the gas would be allocated.

The decision will be Vice President Boediono’s. Darwin said he would meet with Boediono to discuss it on Monday.

Evita said the decision could be made before the end of the month.