Pertamina, Medco, Mitsubishi hit a snag in LNG talks

State oil and gas company PT Pertamina and PT Medco Energi International Tbk hit a snag in their talks with Japanese firm Mitsubishi Corp. over the Senoro LNG project in Central Sulawesi, raising the possibility that both firms would transfer the project to other companies.

Tri Siwindono, development director of Pertamina E&P, said on Thursday that the firms had yet to reach an agreement on the selection of contractors to develop the project. Mitusbishi proposed that all works would be carried out by Japanese contractors, while Pertamina and Medco wanted national contractors handle the works.

Pertamina and Medco argued that the cost of the project would significantly increase if all the project?s works are to be handled by Japanese contractors.

?Mitsubishi wants everything from Japan. If everything is to be sourced from there, (the cost of the project) will rise to above US$700 million. Meanwhile, Mitsubishi has a leverage of obtaining cheap loan if the loan amounts to about $700 million. If we take a higher amount of loan, the cost of the project will rise and our margin will get smaller,? Tri said.

The Senoro LNG plant with a capacity between 2-2.5 million tons per annum (MTPA) will get natural gas supplies from Pertamina and Medco?s Senoro-Toili block and Pertamina?s Matindok-Donggi blocks. Both blocks have combined proven and certified gas reserves of 2.3TCF.

Medco, Pertamina and Mitsubishi have thus far agreed to set up a downstream unit to develop the LNG plant with Pertamina and Medco having 20 percent respectively and Mitsubishi 60 percent.

Tri dismissed rumors that Pertamina and Medco had been discouraged from signing a HoA with Mitsubishi due to pressure from Australian LNG Limited, which had several years ago signed a ?binding? preliminary agreement with Medco to develop an LNG plant with gas supplies from Medco?s field. Pertamina however rejected the agreement, calling for a beauty contest to find a developer of the project.

After a beauty contest last year, Pertamina and Medco selected four bidders to develop the project, that is Mitsubishi, Mitsui Corp., Japan LNG and Australian firm LNG Limited who was partnered with Osaka Gas. In the final selection process, Mitsubishi was named as winner and Mitsui as second bidder.

Tri said Pertamina still hoped to sign a HoA with Mitsubishi later this month. However, he said, should Pertamina and Medco fail to reach a deal with Mitsubishi, Pertamina and Medco would offer the project to second bidder. (Godang)