China Must Pay Market Price for W. Papua Gas, Govt Told

Indonesia must renegotiate a key liquefied natural gas sales contract with China next year as part of the country’s efforts to boost gas revenue, a member of an industry body said on Thursday.

Indonesia has been locked into a price for LNG processed at a plant in Tangguh, West Papua that is lower than the current market price.

The China National Offshore Oil Corp. — China’s largest offshore oil and gas producer — signed a sales contract in 2002 allowing it to buy the gas at $2.40 per million British thermal units (mmbtu) for 25 years. The figure is just one-seventh of the upper range of the price paid for gas from other Indonesian plants.

The contract includes an option to raise the domestic gas sales price based on global market rates. The contract also permitted a review of the gas sale contract, with a review slated for next year.

“The renegotiation team must prepare everything well, because this is not an ordinary bargaining process — this is a diplomatic process,” Widjajono Partowidagdo, a member of the National Energy Council (DEN), told the Jakarta Globe on Thursday. “Should the domestic gas price reach the market price, there is no way China should get the lower price.”

The DEN is an independent agency advising the government on gas and energy affairs.

BP Migas, the state regulator that oversees oil and gas production, is trying to review gas sales contracts with buyers in order to boost state revenue from profit-sharing contracts with producers amid rising natural gas prices.

Kurtubi, director of the Center for Petroleum and Energy Economic Studies, estimates that Indonesia has lost $4 billion every year from the contract with the Chinese firm.

He said that the government must investigate the contract and establish who had initiated the under-the-market-price contract. “This is a fraud, and it may charged as a criminal action,” Kurtubi said.

The Tangguh plant, located in Bintuni Bay, is one of three natural gas plants in Indonesia. The other two are in Arun in Aceh and Bontang in East Kalimantan.

Natural gas from Arun and Bontang is exported to Japan for between $13 and $18 per mmbtu.

Complicating renegotiations is CNOOC’s 17 percent ownership in the Tangguh plant, and Indonesia’s contractual requirement to supply 2.6 million tons of LNG per year to China.

Indonesia has been trying to renegotiate the gas contract since 2008, a year after the first unit ofgas was exported to CNOOC.

BP Migas is also trying to renegotiate the price of gas sold to state-controlled firm Perusahaan Gas Negara. “The PGN renegotiation should be completed this year, before it’s too late,” Widjajono said.

He also requested the State-Owned Enterprises Ministry help BP Migas renegotiate the gas price with PGN.

Gde Pradnyana, BP Migas spokesman, said the supervisory body periodically sends a letter to the Energy Ministry regarding the renegotiation of the Tangguh LNG contract.

CNOOC officials were not available to comment.

Source; http://www.thejakartaglobe.com/

Posted in: Act of Free Choice,English News