South Korea to buy Tangguh LNG at Fujian price: Purnomo
Wednesday, October 15 2008 - 02:45 AM WIB
"They (the South Korean buyers) said just now that they will follow the LNG price for Fujian. Now, we are negotiating the Fujian price. If we are able to raise the price, the South Korean buyers will also raise their purchasing price," Minister of Energy and Mineral Resources Purnomo Yusgiantoro said Wednesday.
"I've got an information that South Korea's President will come to Indonesia in December. Maybe, he is going to talk about the Tangguh LNG and the extension of the (South Korean) contracts with the Badak LNG plant," Purnomo added.
Purnomo made the statement on the sidelines of the 2nd Indonesia-Korea Energy Forum which last for two days until Thursday.
Indonesia has established a task force led by Minister of Finance/Coordinating Minister of the Economy Sri Mulyani Indrawati to renegotiate the price of LNG supply from Tangguh to the Fujian terminal as Indonesia considers the price too low in view of the current oil price.
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 and thus the LNG price at $2.6 per million British thermal unit (MMBTU).
In 2006, China agreed to revise upwards the ceiling crude reference price to $38 per barrel and thus the ceiling price for the LNG to $3.5 per MMBTU -- still much lower than the market price. Crude traded above $100 per barrel in the beginning of the year, hit above $140 in June but has declined to less than $80 at present.
The Tangguh LNG plant in West Papua which is being developed the BP Plc-led consortium signed a contract to supply a total of 1.1 million tons per year of LNG to SK Corp and Posco in 2004.
In June this year, the Tangguh consortium also clinched a deal with another South Korean buyer, Kogas, to sell "less than one million tons per annum" of LNG at US$20 per MMBTU under the $100 per barrel of oil assumption. (Godang)