Purnomo defends Tangguh LNG contract with China
Tuesday, August 26 2008 - 03:03 AM WIB
When the contract was signed in 2002, crude price was very low and Indonesia had earlier failed to win the contract to supply LNG to China?s province of Guangdong, Taiwan and South Korea, because the price offered by Indonesia was higher than those by competitors.
?Fujian contract was given after Indonesia failed in Guangdong. The price formula (for the supply to Fujian) was not set by Indonesia but by buyer in the invitation bid,? Purnomo said.
The Fujian contract has been raising controversies following a recent statement by Vice President Jusuf Kalla that it is one of the worst oil and gas contracts ever signed by Indonesia. Jusuf recently went to China to ask the country?s leaders to review the contract. He also called for an investigation into people involved in the process to obtain the contract.
Purnomo said he was not afraid of the planned investigation.
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 Tangguh LNG plant is being developed by a consortium which led by British energy giant BP Plc. (Alex)