Japan looks for alternative as Indonesian LNG supply drops

Japan, the world's biggest importer of LNG, is weaning itself away from top exporter Indonesia, whose reputation as a reliable supplier is losing its shine, Reuters reported.

Two of Japan's top four power utilities will slash LNG purchases from Indonesia next year as old, long-term supply contracts are replaced with short-term deals for smaller volumes and firms diversify suppliers.

Tokyo Electric Power Co., Asia's biggest utility, plans to take just 130,000 tonnes per annum (TPA) of Indonesian LNG in a contract starting 2005 and running to 2009.

Its existing 21-year contract, which expires at the end of the 2004, is for 510,000 TPA.

"We can make up for the cut to Indonesian supply by spot purchases and by using options to buy more from existing suppliers," a TEPCO spokesman said.

Indonesia has been struggling to meet its supply commitments, hit by a spate of production problems and increasing demand at home. The authorities have diverted some gas supplies to the domestic market and away from LNG facilities.

Officials at oil and gas watchdog, BPMIGAS, said in November that Indonesia might buy up to 50 spot LNG cargoes to cover its contracts. Buyers in Taiwan, South Korea and Japan have confirmed that Indonesia has asked to cancel or reschedule some deliveries.

TEPCO, which bought a total 16 million tonnes of LNG in the business year to March 2004, has raised the volume it planned to take from Russia's Sakahalin II project by 36 percent to 1.5 million TPA from an original 1.1 million TPA. The deal runs for 22 years starting in 2007.

The spokesman said TEPCO's demand would decline next year as nuclear power generation increases following a string of plant shutdowns in 2003 in a scandal over falsified safety checks.

Tohoku Electric Power Co. will reduce volumes of Indonesian LNG to 830,000 tonnes over the next five years starting in 2005 compared with its current contract of 3 million tonnes to the end of 2004.

A spokesman for Japan's fourth-biggest utility said it would double contract volumes from Malaysia and would start importing from West Australia to fill the gap.

Japanese buyers were stung in 2002 when a newcomer to the LNG market, China, sealed supply deals far below rates booked for contracts into Japan, partly because of Japan's heavy reliance on imports.

"The move (to diversify suppliers) is welcome. Old contracts, including ones with Indonesia, are pricey," said Masanori Maruo, a director and energy analyst at Deutsche Securities Ltd.

Other customers -- Kansai Electric Power Co., Tokyo Gas Co., Osaka Gas Co. and Kyushu Electric Power Co. -- have been informed by Jakarta that its exports will be cut due to output problems and the diversion of supplies to the domestic market.

"Indonesia explained to us that its falling LNG output may impact on shipments in 2005," a Kansai Electric spokesman said.

Tokyo Gas said its volumes were "likely to be reduced by several cargoes", a spokesman said.(*)