Mixed reactions to China's LNG tender

Analysts are divided on Monday about Indonesia's chance to penetrate China's LNG market after the Chinese government decided to put its LNG import demand into tender.

Several analysts opined that the Chinese government's decision was a sort of a polite rejection of the Indonesian marketing efforts, citing that tender was an unusal practice in the LNG sales-and-purchase agreement.

"It's our diplomatic blunder. It think China's decison to put its LNG import demand into tender means that it has politely rejected our proposal," an anonymous industry source told Petromindo. Com.

The source said state oil and gas company Pertamina had always won its LNG purchase contracts without a tendering process. Buyers usually in the past placed orders with the state company without a bidding process.

The source was commenting on the reports that the Chinese government had told a visiting Indonesian delegation led by Minister of Mines and Energy Susilo Bambang Yudhoyono that it would put its LNG import demand of three million tons per year into tender.

The delegation, including Pertamina's president Baihaki Hakim, president of BP Amoco Indonesia Bill Schrader and direcdtor general of oil and gas Rachmat Sudiboyo, visited China for several days last week to market the Tangguh LNG project in Irian Jaya. The LNG plant will be operated by BP Amoco.

Racmat earlier said Indonesia would compete with Qatar, Australia and Malaysia in the tender, which he expected to take place in August.

Rachmat was optimistic that Indonesia would win the tender given the country's track record as the world's LNG largest exporter and the shorter distance for Indonesia to transport its LNG products to China, compared to main competitors Australia and Qatar.

Pertamina's former director of general affairs Hadi Daryono, who had been handling LNG marketing for years, shared Rachmat's optimism.

He said China's decision to put its LNG import demand into tender did not necessarily meant that the country had rejected Indonesian's marketing efforts.

The decision reflected that the change of the LNG market in Asia from seller market to buyer market due to the emergence of new producers.

"In the past, Pertamina had always won LNG purchase order without tendering process due to the absence of competitors. Today, there are many sellers that buyers put their import demand into tender," Hadi told Petromindo.Com.

He said India had put into tender its LNG demand for its western coast area several years ago, where Indonesia lost out to competitors from the Middle East.

"We lost that time because our Middle East competitor was closer in terms of location to the market," Hadi said.

Hadi said he was optimistic Indonesia would win China's LNG tender given the advantages owned by Indonesia over its competitors, including its closeness to the market and its good track record. But, Indonesia should offer several incentives, incuding price incentives and other kinds of incentives, to win the tender.

He noted that although China had said it would put its LNG demand into tender, under the Chinese government's system, the country's central governent would still play a pivotal role in deciding on the tender's results.

"Thus, we always have to lobby the Chinese government to win the tender," Hadi said. (*)