Bontang should be involved in LNG supply to Fujian

A member of the Commission VIII of the House of Representatives (DPR), A Farial, has asked the government to involve Bontang LNG plant in the supply of LNG to Chinese province of Fujian, which has recently expressed its firm commitment to buy about 2.5 million tons of LNG a year from Indonesia for 20 years, Republika reported on Tuesday.

According to Farial, supplying the Chinese province from the Tangguh LNG project in Papua or Irian Jaya province would be too expensive for the government, which has to bear the cost for the construction of the LNG plant.

"The gain to be received by the government?s from the sale of LNG to Fujian will not significant because the high amount of funds needed to built the Tangguh LNG plant," he said.

International oil giant Beyond Petroleum (BP) is currently preparing the construction of the LNG plant in Papua province. The construction of the LNG plant will cost abut US$3 billion, not including the US$2.5 billion already used by BP to acquire gas fields from Arco, Occidental and several other gas field operators in the area.

With other marketing expenses, the entire cost to supply the Fujian LNG demand will reach at least US$5.7 billion, bit lower than the US$8.4 billion expected from the 20-year sales contract. From this scenario, the gain from the sales is about US$2.7 billion.

Under the production sharing contract with gas producers, the government receives 70 percent from the production and the operator gets the remaining 30 percent. However, the production that will be shared by the government and the operator should be first deduced from all of the investment and other operating costs spent for production activities.

He estimated that the government?s receipt from the operation of the planned Tangguh project would be only about US$1.89 billion from the 20-year contract to Fujian or about 70 percent from the total US$2.7 billion gain expected from the contract. (*)