Western buyers? demand for LNG price cut might be granted: Pertamina

A senior official of state oil and gas company Pertamina said Friday the state company might grant requests from Indonesian liquefied natural gas (LN) buyers in the western part of Japan, popularly known as ?western buyers?, for price cuts.

Pertamina?s downstream deputy director Muchsin Bahar told reporters that Pertamina and the government had indicated willingness to cut the LNG price.

?The problem now is whether the production sharing contractors (PSC) are willing to cut their prices because for them a contract is a contract. Therefore, they consider price cut is not an option, ? Muchsin said during an oil and gas workshop in Anyer, Banten

Under the PSC system, contractors take 30 percent of their gas output and leave the remaining 70 percent to the government. Contractors thus take 30 percent of earnings from the conversion of their gas into LNG.

Indonesia, the world?s largest LNG exporter, now has two LNG centers, respectively located Arun, Aceh and Bontang, East Kalimantan. Operation at Arun had been suspended for months due to stoppage of gas supplies from American energy firm ExxonMobil Oil Indonesia Inc, which suspended its gas operation in Aceh since March.

According to Muchsin, the so-called western buyers asked for price cut because they were having problems in marketing their gas in Japan due to the country?s liberalization of its gas industry.

?Pertamina and the government understand their problem and agree to cut the price. We are committed to maintaining our decades-long good relationship with our Japanese customers, ? Muchsin asserted.

He noted however that the price for LNG supplied to the western buyers after the cut would not be lower than the price charged to Japanese buyers in the eastern part of the country, better known as ?eastern buyers?.

?The price after the cut will range between current contract price and the price imposed on the eastern buyers,? he said.

Pertamina?s president Baihaki Hakim last March reported the eastern buyers? request to the House of Representatives, asking for the legislators? approval as the price cut would have an impact on the state budget. It remains unclear if the House finally gave its approval of the request.

Baihaki said Indonesia should be ready to provide incentives to its LNG customers to survive the current cutthroat competition in the regional LNG market.

Indonesia has been for decades dominate the market, but threats have been coming from new players such, such as Qatar, Malaysia, Brunei Darussalam and Austrilia, which are ready to sell their products at low price to grab Indonesia?s market share.

Baihaki said among the eastern buyers are Osaka, which has signed with Pertamina a 10-year contract ending 2010 for the purchase of 1.3 million tons of LNG per yea r, and Kansai, which has a 20-year contract ending 2003 for the purchase of 910,000 tons of LNG.

Pertamina?s traditional LNG buyers are Japan, South Korea and Taiwan. The company is also eyeing new markets in India and China. (Alex/Godang)