Indonesia Plans Major LNG Price Reviews to Boost Revenue

The government plans to hold talks with natural gas buyers and producers to review the terms of their sales contracts as it tries to boost gas revenue, an Energy Ministry official said.


“Any gas sales that are below the economical price will be reviewed,” Evita Legowo, director general of oil and gas at the Energy Ministry, said.
Evita, who did not provide further details on which contracts the government planned to review, said the prices stated in sales contracts should reflect the market price.
The duration and price contained in sales contracts are typically determined up front by gas producers. Evita said it was not yet clear whether the amount of gas sold or the duration of contracts would change as part of the renegotiations, “but the price of the gas will be affected.”
One contract the government has been determined to renegotiate is over the Tangguh natural gas plant in Papua. The China National Offshore Oil Corp. signed a sales contract in 2002, allowing it to buy gas at $2.40 per million British thermal units for 25 years.
Tangguh, located in Bintuni Bay in West Papua, is one of Indonesia’s three natural gas plants, along with Arun in Aceh province and Bontang, East Kalimantan. Natural gas from Arun and Bontang is exported to Japan at a range of $13 to $18 per mbbtu.
Tangguh is 37 percent controlled by BP, with CNOOC holding a 17 percent stake and Mitsubishi Corp. holding 16.3 percent. It has multi-year contracts to supply 2.6 million tons of LNG per year to China, 1.15 million tons per year to South Korea and an agreement to supply as much as 3.7 million tons a year to California-based Sempra Energy, BP said on its Web site.
“We will definitely review gas sales prices that are below the economical price,” Evita said.
Gas sales through pipelines will also be reviewed, she said. Gas companies sell their product through pipelines to domestic companies, including state utility provider Perusahaan Listrik Negara, as well as exporting to Singapore and Malaysia.
Priagung Rakhmanto, an energy analyst at the Reforminer Institute, said the current market price of natural gas should hover around $10 per mmbtu.
“There are several gas sales contracts that are sold under the economical price,” Priagung said, although he did not specify which contracts were below market price.
Natural gas in Indonesia is sold at an average of $2.70 per mmbtu, Priagung said, but citing market price data, he said the average price should be $4 to $5 per mmbtu.
Gas companies usually take into account the average wellhead price, distribution costs and other factors to determine the price of natural gas.
“The government should be aware of this. They should talk with gas distributors to reduce the tariffs and increase the wellhead price,” Priagung said. Increasing wellhead prices, he continued, would push gas companies to sell gas to the domestic market.
President Susilo Bambang Yudhoyono asked the government earlier this month to review its contracts with foreign companies in search of better terms.
Source: Jakarta Globe