Japanese buyers may reduce future LNG import from Indonesia

Japanese LNG buyers whose contract to buy up to 12 MTPA of Bontang LNG would expire in 2010, are predicted to extend the contract but at reduced volume in order to cut its dependency to any single country supplier, a BPMIGAS official said Friday.

?Indonesia is surely expect Japanese buyers to continue to buy Bontang LNG, but we also have to be realistic that they want to reduce exposure of being too dependent on single LNG supplier, as new LNG suppliers are emerging,? said Eddie Poerwanto, deputy chairman of Indonesian upstream regulator BPMIGAS .

Eddie predicted that Japanese buyers would extend 6-9 MTPA of Bontang LNG contract. ?Times are changing. When they first signed Bontang contracts, they don?t have much alternative had they have now. For Japnese buyers, security of supply in terms of not depending on single supplier is of utmost importance, even more important than price,? he said. ?We consider it lucky if we can get 9 MTPA extension,? he said.

Under the fair and equal treatment deal signed in 2002, Japan?s Western Buyers had committed to extend at least half of the contract volume in exchange of price reduction the group gets from Bontang. Western Buyers got price cut after the group protested cheaper contract prices Bontang LNG gave for Eastern Buyers for smaller volume contract. Eastern Buyers is grouping of utility firms, which consist of Tohoku Electric and Tokyo Electric.

Western Buyers include Chubu Electric, Osaka Gas, Kansai Electric, Tokyo Gas, Nippon Steel, Toho Gas and Nippon Gas.

Indonesian had been trying to press for contract extnsion but thus far, negotiations were far from concluded. Japanes buyers had been asking Bontang to reduce its price level under current contracts as condition for contracts extension, but Indonesia had signalled unwillingness to do so, arguing that Japanese buyers must honor the sanctity of the contract. On top of that, Japanese buyers aslo asking for significant price reduction, matching the low price of Tangguh LNG sold to China?s Fujian, and greater flexlibility in contract terms and deliveries.

When accompanying President Susilo Bambang Yudhoyono visit to Japan earlier this month, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that Indonesia would not bow to pressure to reduce LNG price under current contracts, but said Indonesia would be willing to negotiate on more generous prices and more relaxed terms and conditions.

Eddie also said that it would be impossible for Indonesia to give LNG price to Japanese similar to Tangguh LNG price to Fujian. ?The contract was made several years ago when cure price was below US$20 per barrel. Now crude price has reached $50 per barrels,? he said. LNG pricing formula is usually linked to crude prices.

Another source at BPMIGAS said that Indonesia has anticipated the possibility that Japan would not take as much as 12 MTPA from Bontang when current contracts expired and had been opening contacts with potential buyers to fill up the vacant contract.

?Thus far, Indonesia had held talks with Mitsubishi Corp. which would set up an LNG receining terminal in Long Beach, USA. Also there has been intensive contracts with Chinese firms which are keen to buy more LNG from Indonesia,? said the source.

A senior official from French oil giant Total SA that supplies more than half of Bontang natural gas requirement said in January that there is also the possibility to let some of Bonatng capacity remain uncontracted to tap the increasing spot LNG trade.(alex)