Indonesia has yet secured LNG source to bridge SK-Posco supply deal

Despite close to sign LNG sale and purchase agreement with South Korean companies SK Corp and POSCO, Indonesian upstream oil and gas authority BP Migas admitted that thus far it had not been able to secure firm LNG source to bridge supply for 2005-2006 shipments, before Tangguh LNG plant in Papua commence production.

“We are still waiting for confirmation whether Bontang LNG plant still has spare capacity of around 500,000 tons of LNG in 2005 and 2006 to be shipped to SK and Posco. However, judging from East Kalimantan gas producers current condition, I’m not optimistic they can increase gas supply to Bontang in such a short time,” said BP Migas chairman Rachmat Soedibjo in an interview with Petromindo.Com Wednesday.

BP Migas and Anglo-American giant BP Plc. has signed heads of agreement (HoA) to supply up to 1.1 million tons per annum of LNG to SK and Posco for 20 years, with first delivery expected next year. Under the contract, the LNG will be sourced from BP-operated Tangguh, which is scheduled to commence production in 2007, with BP Migas and BP be responsible to supply LNG to both companies prior to Tanguh’s commencement. Rachmat said final agreement is expected to be signed in March this year. Rachmat said in 2005-2006, Indonesia would be obliged to supply some 500,000 tons of LNG per annum.

Rachmat said East Kalimantan gas producers including Total SA, Vico and Unocal Corp. are facing problems in their gas fields, which will make it hard for them to increase gas supply in such a short period. Unocal and Vico's existing gas fields are on the declining mode due to reserves depletion, while Total's development wells drillings are delayed by shortage of swamp barge rigs.

Rachmat hinted that BP Migas would soon look for overseas LNG suppliers that have capacity to bridge the supply gap.

“We would probably start to contact overseas LNG producers such as Oman LNG or Malaysia Tiga next month or as soon as we get confirmation from East Kalimantan producers that they were unable to increase supply,” said Rachmat.

Rachmat said if it turned out later that the price of overseas LNG cargoes were higher than selling price to SK and Posco, BP Plc would have to shoulder the difference.(alex)