CNOOC asks for right to divert Tangguh LNG

Upstream oil and gas authority BPMIGAS said on Wednesday that aside from a revision of the ceiling price for Tangguh LNG, there were two main issues that must be resolved before the Gas Sales Agreement (GSA) with Chinese oil firm CNOOC Ltd. could become effective.

BPMIGAS Deputy Chairman in charge of marketing Eddie Poerwanto told Petromindo.Com that Indonesia and BP Plc, which operates Tangguh LNG plant, wanted an even higher price should CNOOC ask for the right to divert future shipments of Tangguh LNG.

Eddie said CNOOC wanted the right to ship the LNG to outside Fujian should LNG receiving terminal in Fujian was not yet ready to accept Tangguh LNG by the time Tangguh LNG shipment commenced in 2008.

"If they want to do that, they have to pay a higher price for the LNG," Eddie said.

Informed sources said that the construction of the Fujian LNG receiving terminal could not be completed by the time the shipment from Tangguh commenced in 2008. The sources also said that CNOOC had been planning to divert the LNG cargoes to Shanghai, where CNOOC is also planning to build a 3-million ton per annum (MTPA) LNG receiving terminal. BP has also expressed interest to participate in the development of the Shanghai terminal.

The second crucial issue was the security of payment, Eddie said.

He said the Tangguh LNG consortium and BPMIGAS wanted a secure payment for the LNG that would be exported to Fujian.

Eddie did not explain further but the sources said that the Tangguh consortium and BPMIGAS are concerned about the security of payment as thus far CNOOC had not signed any solid gas supply agreement with anchor gas offtakers, which are supposed to be power plants that are planned to be built in Fujian.

"That's also one of the reasons why CNOOC wants the diversion right," said one of the sources.

The sources said the lack of security of payment had made CNOOC unable to fulfill conditions necessary to make the GSA on the Tangguh LNG effective and thus risk the cancellation of the deal.

"That's also the reason why CNOOC was willing to re-negotiate to increase LNG price from Tangguh," said one of the sources.

BP and CNOOC had signed the 2.6-MTPA LNG supply agreement in 2002 at what is considered by many as rock bottom price as, under the agreement, CNOOC has only to pay a maximum US$2.6 per MMBTU for the gas, compared to the current market price of $9 per MMBTU.

BPMIGAS and BP are scheduled to finalize price revisions and other issues in their meeting in Hongkong with CNOOC early this month. (godang)