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NEWS UPDATES 25 June 2009

Japanese firms extend talks on Indonesian LNG sales

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Japanese buyers have extended the Heads of Agreement (HoA) for the sale of gas from the planned Donggi-Senoro LNG plant, allowing the government and the plant’s builder to continue talks over LNG sales, reported the Jakarta Post.

“They’ve given us more time to continue negotiations with the government,” Lukman Mahfoedz, project director at PT Medco Energi Internasional, said Tuesday.

Medco is a member of the consortium that established PT Donggi Senoro LNG, the company that will construct and operate the liquefied natural gas plant.

Medco holds a 20 percent participating interest in the project, while state oil and gas company PT Pertamina holds 29 percent and Japan’s Mitsubishi Corporation has a controlling 51 percent stake.

The consortium signed the HoA with Japan’s Kansai Electric Power Co. Inc and Chubu Power Co. Inc at the end of February this year, with each company set to be given 1 million tons of LNG a year for 15 years, starting from 2012.

However, the contract and the overall LNG plant project’s continuity have been rocked by Vice President Jusuf Kalla’s announcement last week that gas from the Senoro and Matindok fields, intended to supply the plant, must be sold to domestic industries.

Medco, through its subsidiary PT Medco E&P, owns 50 percent of the Senoro field, with Pertamina holding the remainder. Pertamina fully owns the Matindok field.

Lukman has repeatedly said the consortium believes the combination of exports and domestic supply is the most economically viable method for the development of the Senoro and Matindok fields.

“We will continue our dialogue with the government; the Japanese buyers want to give us time for this because Pertamina has been supplying LNG to Japan for 30 years [through other LNG plants],”
Lukman said.

This is the second time the HoA has been extended. It should have initially expired on March 31, but the buyers agreed to extend it to the end of June, Pertamina president director Karen Agustiawan said on June 10.

Lukman declined to mention the due date for this latest HoA extension set by Kansai and Chubu.

“They expect us to complete the negotiations as soon as possible,” he said.

Despite the ongoing talks with the government, the consortium has not revised its time line for the Donggi Senoro plant to go onstream.

“We’re still targeting the plant to start producing LNG by between 2012 and 2013, “ Lukman said.

“There are many projects to complete in 2013, so if we don’t finish this project by 2013, the buyers will seek other sources.”

The consortium insists the LNG sales agreement with Kansai and Chubu is the best contract. Lukman said that with the Japan Crude Cocktail price of US$70 per barrel, the LNG price for Kansai and Chubu would be $10.90 per MMBTU (million British thermal units).

“This is higher than the current price of LNG at the spot market of about $5 per MMBTU,” he said. 

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