Indonesia won?t extend LNG contracts: President
Saturday, March 25 2006 - 01:59 AM WIB
Susilo was quoted by Kompas as saying the government had made the decision in line with a new energy policy that will prioritize the use of the country?s gas for domestic industries.
?With regards gas, we have came into a conclusion that after contracts expire in 2009-2010, we shall use many of our gas output in the country. If gas is used in the country, the price of electricity and fertilizer will go down as oil price is too high,? the President said in his speech to open a student congress.
Countries whose contracts expire in 2009-2010 are among others South Korea, Taiwan and Japan, he said.
Analysts say the decision would certainly send jitters to the regional LNG market as Indonesia has been become the main supplier in the market and a serious shortage of LNG supply would occur in the region as a result of the policy. It would particularly shock the Japanese buyers who are negotiating with Indonesian for the extension of LNG contracts.
Earlier, oil and gas upstream authority BP Migas? chairman Kardaya Warnika said that Indonesia has almost completed negotiations with a group of Japanese buyers for the extension of contracts for the supply of 6 million tons of LNG per year. Everything has been settled during the negotiations except for issue regarding the volume as Indonesian LNG suppliers were only ready to supply 5 tons per year. Indonesia would also start negotiations with another group of Japanese buyers to extend contracts for the supply of 6 million tons of LNG per year.
?The decision will certainly displease other countries. But, it is in our interest and for our economic independence, to make such a breakthrough policy,? said the President, who was greeted with applause by the students.
He said such policy was in line with the vision of first President and founding father Soekarno who wants the nation to have independence economically, politically and culturally.
Indonesia would also gradually reduce its foreign debts as the huge amount of debts had become economic and development burdens thanks to the wrong recipe given the International Monetary Funds during the economic crisis several years ago.
The President has several times mentioned the new energy policy since the country was hit by a gas shortage in 2005. The shortage forced many industries to suspend operations.
Realized gas output in Indonesia reached 8,160 million cubic feet per day (MMCFD) in 2005, 4,677 MMCFD or about 60 percent of which were exported. The users of gas in the country include state electricity firm PT PLN, fertilizer firms, petrochemical firms and manufacturing firms.
Under the Oil and Gas Law No. 22/2001, Indonesian gas producers are obliged to sell 25 percent of their gas to the domestic market.
Industrial sources say the nation?s LNG producers do not feel happy with the new energy policy as they could sell their gas at higher price in export market. Since the government started telling the public about the shift in the gas policy, many gas producers have put on hold their development plan as they now see uncertainty in the LNG market. (Bodega)