Testing the competitiveness of Tangguh LNG in China market

Lobbies by major gas producers, including Indonesia, to market their liquefied natural gas (LNG) to China have been intensifying, as the tender for the LNG supplies China's southern province of Guangdong will start at the end of this month.

Indonesia is facing tight competition from other gas producing countries, especially Australia, Malaysia, Qatar, Brunei, Iran, and Rusia.

Unlike gas producers in other countries, that have launched high level lobbies to win the contract, Indonesia only sent its Minister of Energy and Mineral Resources, Purnomo Yusgiantoro and the president of state oil and gas company Pertamina, Baihaki Hakim, to market LNG from Tangguh LNG plant in Irian Jaya to China.

Leaders from Malaysia and Brunei, for instance, have met with Chinese leaders, including its prime minister. Morever, Qatar has even involved the power of the United States government to influence China to buy LNG from the country. It is understandable as Qatar's LNG is produced by U.S.-based oil giant ExxonMobil.

Oil and gas expert Kurtubi suspected that ExxonMobil had been practicing "cannibalism" in its business, by closing down its gas operation plant in Arun, Aceh ? which forced PT Arun NGL to stop its LNG production -- and marketing its LNG from Qatar. ExxonMobil, according to Kurtubi, tried to win the contract to export LNG from Qatar to China by tarnishing Indonesia?s image as a reliable LNG supplier. This way, it tried to dampen Indonesia's chance of getting the contract to export its Tangguh LNG to China.

The closure of ExxonMobil?s gas operation had succeeded to undermine Indonesia?s chance of getting the Chinese LNG contract as the efforts to market the Tangguh LNG to China had been hampered by security issues.

Minister Purnomo had acknowledged that some parties had exaggerating the bad situation of Indonesia to the Chinese LNG buyers.

Kurbuti said that that was a very unfair practice on the part of ExxonMobil. He noted that there are other countries with worse security situation than Aceh, but still oil and gas exploitation activities are still going on there. He regretted Pertamina's stance of allowing ExxonMobil to suspend its activities in Arun for too long time.

Meanwhile, a staff expert at the Ministry of Energy and Mineral Resources, Kardaya Warnika, has its own positive argument about the stoppage of Arun LNG production. He said Indonesia could use that situation as a positive argument to sell its LNG from Tangguh.

Even though LNG supplies from Arun LNG stopped for several months, Kardaya contended, Indonesia could still meet its export commitment to Japan and Korea - that normally consume LNG from Arun - using LNG from its Bontang LNG plant in East Kalimantan.

Therefore, Kardaya said, if something happen with one LNG plant in the country, Indonesia would still be able to meet its export commitment because unlike any other country, Indonesia has three LNG centers.

Pertamina president Baihaki Hakim also expressed his optimism that Indonesia would eventually win the competition for the Chinese LNG contract, considering the short distance from Tangguh to China and also Indonesia's traditional good relationship with that country.

Tangguh LNG plant, developed by Beyond Petroleum Plc (BP), is expected to start production in year 2005, with initial output of 1.125 million standard cubic feed of LNG per day.

The Tangguh plant would consume natural gas from three concession areas, owned by BP (50 percent), Mitsubishi (16 percent), Nippon (12 percent), BG 11 (percent), Kanetsu Corp. (10 percent) and Nissho Iwai (one percent). Those concessions has a total natural gas reserves of 14.4 trillion cubic feet of gas. (*)