Japan buyers to resist proposed Indonesia crude formula: Report
Monday, May 27 2002 - 05:39 AM WIB
State-owned oil and gas company Pertamina recently told the Japanese importers that it intends to include price assessments by Petroleum Argus Ltd., a U.K. specialist oil publication, in its pricing formula starting as early as July.
The Japanese buyers believe that the inclusion of Argus assessments would result in higher prices for the Indonesian Crude Price, or ICP. They fear that the assessments tend to be higher than similar assessments by Platts and Rim Intelligence - two other specialist energy publications - that currently dominate the term pricing formula.
"Under the current (business) environment in Japan, we can't accept price hikes. We don't want them to revise their pricing formula," said a trader at a major oil company.
"We think prices are already high under the current pricing formula," said another Japanese trader.
Amid prolonged economic doldrums, Japanese oil companies have been hit by sluggish oil demand, particularly from power utilities. Minas crude, Indonesia's main crude oil, is typically used for direct burning at thermal power plants.
Officials at Japanese oil companies have told Pertamina about worries that the proposed change in the pricing formula could push up their purchasing costs for Indonesian crudes, traders said.
The current ICP, as agreed between Pertamina and its term buyers in 1999, is made up 40 percent of Platts assessments, 40 percent of assessments by Rim Intelligence and 20 percent by the Asian Petroleum Price Index, or APPI. APPI is a widely used marker for Southeast Asian crude prices that is compiled by an accountancy firm.
Rising ICPs would also be a direct blow to Japanese power and gas utilities that import Indonesian liquefied natural gas, as their LNG contract prices are linked to the price of Indonesian crude. (*)