Govt decides Donggi LNG only for domestic market: VP

A multi-partner joint venture to build an LNG plant in Donggi, Central Sulawesi, to produce LNG for export may fall apart as the government announced Thursday that natural gas output initially intended to supply the plant would be used instead to meet domestic demand.

Vice President Jusuf Kalla told reporters Thursday that gas from the Senoro and Matindok fields in the province must be sold to domestic buyers, referring to local industries that rely heavily on gas for production, particularly local fertilizer producers.

?We cannot export gas overseas, while at the same time our industry faces gas shortages. Independence in energy is critical,? Kalla said as quoted by The Jakarta Post.

Kalla said the decision was final and that it was taken collectively by the government.

?I have reported this to the President and the President has agreed with the decision,? Kalla said.

The LNG plant, which is estimated to cost US$3.4 billion, is supposed to be built by a joint venture between state-owned oil company PT Pertamina with a 29 percent stake, PT Medco E&P with a 20 percent stake and Japan?s Mitsubishi Corp. with a 51 percent share.

The plan to build the plant will likely falter as all the companies involved envisage supplying LNG for export, particularly to Japan.

The three parties agreed in February to sell one million tons of LNG each to Japanese utilities Chubu Electric Power and Kansai Electric. The contracts are supposed to run for 15 years.

Upstream oil and gas regulator BPMIGAS said it would fully back up the government decision.

?With regard to the Donggi LNG plant, it?s up to Pertamina and Medco to evaluate whether the project is still viable economically or not economically viable," BPMIGAS?s chairman R. Priyono said.

In response on Thursday, PT Pertamina dan PT Medco Energi Internasional Tbk said that the gas produced from Senoro should be dedicated to the export market to provide greater income to the state.

Pertamina's spokesman Basuki Trikora said that the option of dedicating part of the gas from Senoro to the export market and another part for the domestic market looks like the best solution.

Meanwhile, Medco's Lukman Mahfoedz dedicating the gas for the export market from a marginal field which has not been developed for 28 years is the best option.

"Especially that his project is a fully private project without burdening the state and without cost recovery," he said, adding that it is not easy to get financing for the $3.4 billion project without government guarantee amid the current global financial crisis. (godang/bernard)