The government has offered to accept Japan's price proposal on Liquefied Natural Gas (LNG) on condition Japan disregard Indonesia's failure in delivering 72 LNG cargoes under existing contract
The government has offered to accept Japan's price proposal on Liquefied Natural Gas (LNG) on condition Japan disregard Indonesia's failure in delivering 72 LNG cargoes under existing contract.
Currently, Indonesia frequently delivers LNG cargoes to Japan holding an average of 1 million tons, which is valued at US$8 per million mmbtu (British thermal units). However, this contract will expire in 2010.
Speaking at a press conference Monday, Energy and Mineral Resources Minister Purnomo Yusgiantoro said the government was currently negotiating a new deal on LNG sales to Japan to extend the existing contract.
Purnomo and government representatives from Upstream Oil and Gas Regulator BPMigas are scheduled to fly to Japan on Monday to discuss the matter; the negotiation deadline is next month.
In their negotiations, the government proposed a price of more than $10 mmbtu while Japan insisted on a lower price.
Under the proposed extension contract, the government has agreed to export 3 million tons of LNG within a period of five years. It also agrees to export 2 million tons in another five-year-period after 2015.
The new contract will replace the existing 25-year-contract, which binds the government to supply 12 million tons of LNG every year to Japan at the price of around $8 to $9 per mmbtu until 2010.
The government's decision to cut exports is in line with its policy to prioritize gas supply for the domestic market. Domestic prices are expected to soar in coming years.
Purnomo said his visit to Japan was also to discuss a plan to reallocate some of the gas from the Tangguh block in Papua from U.S. buyers to a Japanese buyer in Tohuku at the Northeastern part of Japan.
As one of the world's largest LNG suppliers, Indonesia is seeking to profit from soaring global gas prices by reviewing its current contract with existing foreign buyers.
Under a 20-year contract, gas being exported from Tangguh to the U.S. is priced at $5.94 per mmbtu, which is lower than the current global price of $8 per mmbtu.
However, the contract allows gas reallocation to other markets if the supplier, Indonesia, agrees to pay a diversion fee.
Besides Tohuku, the government is also negotiating the reallocation of Tangguh gas with Thailand's PTT, which has shown its interests in buying the resource.
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