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Indonesian gov't struggles to find LNG buyers

Publication Date : 14-05-2014


Indonesia's Upstream Oil and Gas Regulatory Task Force (SKKMigas) is racing against the clock to find buyers for 18 cargoes of Liquefied Natural Gas (LNG) as the existing import contracts for the LNG have expired.

“We are discussing all options to figure out the best move. We have to do this quickly as it is impossible to stop the production,” SKKMigas acting chief Johannes Widjonarko said.

The 18 cargoes of LNG will come from the production of the Badak LNG plant in Bontang, East Kalimantan, during 2014 to 2015 period. The new deals for the 18 cargoes should be made before the end of the first semester so that a cut in LNG production at the Badak plant can be avoided.

Widjarnoko said in Jakarta on Monday that the task force was considering selling the LNG cargoes to a spot market if the agency failed to secure long-term buyers.

Finding new LNG buyers, however, won’t be as easy as the LNG supply in the world market has increased in recent years, especially due to a production boom in the United States.

Compounding the problem, the US Department of Energy has said several companies in the US were seeking the government’s approval to export their LNG overseas starting in 2015. This will give Japan and South Korea, main buyers of Indonesian LNG, more supply alternatives to meet their gas needs.

Widjonarko said the price of the Indonesian LNG would be about US$14 per million British thermal unit (mmbtu). At the end of March, the Asian spot price for LNG was around $15.5 per mmbtu, Reuters reported.

Indonesia is trying to boost domestic gas consumption as in a bid to reduce imports of oil and petroleum products, which have contributed to the country’s large current-account deficit.

Indonesia has the second-largest area of proven natural gas reserves in the Asia-Pacific region after China and the 13th in the world, according to the International Energy Agency. Most of the country’s production, however, is sold overseas, as domestic sales are hampered by poor distribution infrastructure and facilities.

Figures from SKKMigas showed that domestic gas distribution reached 52.1 per cent of total production in 2013, double the 2003 figure of only 25 per cent. This year, SKKMigas is targeting to see 57.3 per cent of total gas produced to be sold in the domestic market.

The country’s gas producers are mostly reluctant to sell their production to local companies, which usually demand lower prices. The producers are seeking higher prices to make sure that they receive fair return from their high-risk investments.

“We hope that the pricing also considers the purchasing power of our industry and also that we have to consider our ability to compete with other players,” Ridha Ababil, the vice president for corporate communications at state-owned gas distributor PT Perusahaan Gas Negara (PGN), said Tuesday.

PGN plans to begin operating a floating storage regasification unit (FSRU) in Lampung this July. PGN has not secured a long-term LNG supply for the FSRU, the country’s second LNG receiving terminal after the West Java FSRU.

SKKMigas, however, has allocated as many as 5 cargoes of LNG from the Tangguh plant, which is operated by BP, for the Lampung FSRU.

Ridha said his company was expecting to obtain an agreement over the LNG supply by no later than June to ensure that the FSRU would begin operating in July.


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