Jusuf Kalla in China to review Tangguh LNG contract

Vice President Jusuf Kalla called on China to review the existing liquefied natural gas (LNG) contract with Indonesia so that the former can get a better price for the LNG that will be supplied from the Tangguh LNG project in West Papua, Kompas reported on Sunday.

"This is the most dangerous contract ever signed in the oil and gas sector. In view of the current situation, we'll be losing a lot (from the contract). I am coming to China bacause I want the contract be reviewed," Jusuf was quoted by the newspaper as saying in Beijing on Saturday.

Indonesia signed a contract in 2002 to supply China's Fujian province with 2.6 million tons per year of LNG from the Tangguh LNG plant for a period of 20 years starting next year.

Under the contract, the LNG price is pegged to the crude price. So the LNG price will rise and fall along with the fluctuation of the crude price. However, the 2002 contract capped the crude reference price at $25 per barrel. In 2006, China agreed to revise upwards the ceiling crude reference price to $38 per barrel -- still much lower than the market price. Crude has been traded above $100 per barrel since the beginning of the year and hit above $140 last month.

Japan and South Korea have agreed to buy Indonesian LNG at much higher prices. Japan for instance has agreed to buy LNG from the Bontang LNG plant in East Kalimantan at $20 per million British thermal unit or equal to $110 per barrel of oil.

The Ministry of Energy and Mineral Resources has sent a team to renegotiate with the Chinese government on the LNG price but thus far the efforts have brought no fruits.

The Tangguh LNG plant is being developed by a consortium which led by British energy giant BP Plc.

Jusuf will meet with China's President Hu Jintao and Vice President Xi Jinping to talk about the issue, according the newspaper. (*)