President agrees to new proposal on gas sales

The Jakarta Post , Jakarta | Wed, 06/07/2006 2:40 PM | Business

President Susilo Bambang approved Tuesday a proposal to increase the maximum oil price used by gas producers to set the price of liquefied natural gas (LNG) sold to Fujian, China, an official with the oil and gas regulating agency says.

A BP Plc-led consortium, which manages the Tangguh gas project in the easternmost Papua province, may use the proposal to derive the price for LNG sales to Chinese oil company CNOOC Ltd., which supplies the LNG to consumers in China.

""The president has in principal agreed to the proposal. The maximum ceiling for the oil price assumption will be increased to US$38 a barrel from $25 a barrel,"" BPMigas chairman Kardaya Warnika said at the Presidential Palace.

Kardaya, however, said the proposal would be discussed further with CNOOC and the Chinese government.

LNG prices are calculated in a formula tied to global oil prices.

Kardaya said Indonesia would receive additional revenue of $1.2 billion to $1.3 billion annually from the increase in the oil price assumption.

The initial agreement to sell the LNG from the Tangguh project was based on a maximum oil price of $25 a barrel. BP has 37.16 percent stake in the project, while CNOOC has 16.96 percent and the remainder is held by several Japanese companies.

The Tangguh consortium has a contract with CNOOC to supply 2.6 million metric tons of LNG annually for 20 years starting in 2008 to generate power in Fujian province. The contract was signed in 2002 when average oil prices were still below $30 per barrel.

Tangguh is producing around 8 million tons of gas a year, from gas fields that have certified reserves of 14.4 trillion cubic feet. Its customers include South Korean steelmaker Posco, and U.S. Sempra Energy Corp. -- JP

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