BP slows Tangguh spending on failure to win enough sales: Bloomberg

BP Plc, Europe's No. 2 oil company, is delaying development of a $2.2 billion liquefied natural gas project in Indonesia after coming second in a race to supply China and failing to sign up more buyers.

Indonesia isn't alone in facing a slowdown at BP, which may cut more than 1,000 U.S. jobs and announce other measures when it releases earnings and a strategy update on Tuesday. Chief Executive Lord Browne is cutting spending to shore up profit after BP last year lowered its output target three times in eight weeks.

Indonesia, the world's biggest liquefied natural gas exporter, lost out to Australia in a contest to supply 3 million metric tons a year to China's first terminal in Guangdong province, starting in 2005. China gave BP's Tangguh project second prize instead -- 2.6 million tons a year of sales to Fujian province starting two years later.

``When we were pursuing Guangdong which was a 2005 start, we were moving very, very quickly,'' said Bill Schrader, president of BP's Indonesian unit, the operator of the plant, in an interview. ``Now that we got Fujian instead of Guangdong, which is 2007, we are matching the project to that need.''

Being beaten to China's first LNG contract was a setback for BP's plan to expand in gas and power as oil deposits become increasingly difficult to find. BP last year met its 3 percent oil and gas production growth target only after lowering it from 5.5 percent. In the fourth quarter, growth slowed to 1.5 percent from a year earlier.

Some analysts had expected the London-based company to win the supply contract for the terminal in Guangdong, which BP is building after winning a 30 percent stake in that project. Even the fact that CNOOC Ltd., a unit of BP's partner in the Guangdong terminal, China National Offshore Oil Corp., is investing in BP's Tangguh venture wasn't enough to win the first sales contract.

Ordering, People

The new 2007 target date to supply gas to Fujian is affecting ``the ordering of the equipment and the number of people we bring on to do projects,'' Schrader said, without giving details.

Indonesia needs to find buyers for 7 million tons of annual LNG output from Tangguh. Apart from the contract to supply 2.6 million tons a year to China, BP earlier said it has a letter of intent from the Philippines' GN Power to buy 1.3 million tons a year.

Muchsin Bahar, the head of downstream affairs at Indonesia's state oil company Pertamina, will visit Japan this week to sell as much as 1.5 million tons a year of LNG from Tangguh, said Mohamad Harun, a Pertamina spokesman.

Pertamina faces increased competition from producers who are expanding plants in Australia, Malaysia, Oman and Qatar and potential new producers such as Russia.

``Indonesia's Tangguh project will be delayed from the original plan,'' said Toshinori Ito, an analyst at UBS Warburg Japan Ltd. ``Many projects are being developed around Asia between 2005 and 2010. Supply in the region will exceed demand for some years.''

Shift Allegiance

Indonesia may persuade customers who currently get LNG from the biggest plant at Bontang, on Borneo Island, to shift over to Tangguh if they renew supply contracts in the future, said Baihaki Hakim, president director of Pertamina.

While investors in the Bontang project, PT Badak LNG, are protesting this plan, ``the government has arguments that make sense,'' said Baihaki.

``The Bontang project has paid out, their investment has reached a breakeven point. Tangguh is a new project,'' he said. ``If the contract renewal is given to Bontang, when would Tangguh start? In this case, we are talking about the national interest.''

Tangguh in the easternmost province of Papua, Indonesia's third LNG venture, will extract gas from fields that have 14.4 trillion cubic feet of proven reserves.

BP, the project operator, last week said it sold 12.5 percent of Tangguh to China's CNOOC Ltd., valuing the venture at $2.2 billion. BP retains a 37.2 percent share. Other partners include Mitsubishi Corp. with 16.3 percent, Nippon Oil Corp. with 12.2 percent and BG Group Plc with 10.7 percent.

``You don't spend your money sooner than you need to, and you don't start the plant any sooner than you need the plant,'' said Schrader. ``We're not slowing down the project. At Tangguh, we have always been matching the project to the marketplace.'' (*)