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Consortium insists on need to export Donggi-Senoro's LNG

The consortium set to construct and operate the controversial Donggi-Senoro liquefied natural gas (LNG) plant in Central Sulawesi has stated that output from the project must be exported to ensure its economic viability

Alfian (The Jakarta Post)
Mon, June 22, 2009

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Consortium insists on need to export Donggi-Senoro's LNG

The consortium set to construct and operate the controversial Donggi-Senoro liquefied natural gas (LNG) plant in Central Sulawesi has stated that output from the project must be exported to ensure its economic viability.

"We will convince *the government* that our scenario is still the best for the country. We will continue our dialogue with the government," Lukman Mahfoedz, project director of consortium member Medco Energy, said in a text message Friday.

The remarks came after Vice President Jusuf Kalla said earlier last week that gas from Senoro and Matindok fields intended to supply the plant, must be sold to meet domestic demand, putting the LNG project in jeopardy.

Medco, through its subsidiary PT Medco E&P, owns fifty percent of the Senoro field. State oil and gas company PT Pertamina owns the remaining 50 percent.

Although Pertamina fully owns the Matindok field, Lukman said the government actually no longer owns the gas, as Pertamina and Medco signed gas sales agreement (GSA) with DSLNG on January 22.

In 2007, Pertamina and Medco formed a joint venture, PT Donggi Senoro LNG, to build and operate the Donggi-Senoro LNG plant.

Pertamina holds a 29 percent participating interest in DSLNG; Medco holds 20 percent and Japan's Mitsubishi Corporation holds a controlling 51 percent share.

The project will require the consortium to invest US$1.6 billion.

The consortium's initial plan to export the LNG from the plant has become uncertain following Kalla's announcement that "all gas must be sold for domestic buyers first".

Chairman of upstream oil and gas regulator BP Migas, R. Priyono, explained further: "The vice president's message is that *the consortium* can proceed with the project as long as its LNG product goes to meet domestic need."

BP Migas is fully supporting the government's decision.

As for Pertamina and Medco, selling LNG exclusively to domestic buyers will render the DSLNG project unprofitable. Indonesia's LNG has, so far, always been exported.

Pertamina and Medco have proposed to supply domestic petrochemical companies with 70 million standard cubic feet of gas per day (MMSCFD) from the Senoro field at a price of $3.17 per MMBTU.

While LNG from the DSLNG plant is still prepared for the export purpose.

According to data from Pertamina and Medco, Donggi-Senoro LNG will need at least 335 MMSCFD of gas (250 MMSCFD from Senoro and 85 MMSCFD from Matindok), at a price of $6.16 per British Thermal Unit (MMBTU).

Pertamina and Medco said in their proposal that PT DSLNG will buy the gas at this price, which is nearly twice the $3.17 per MMBTU offered by domestic petrochemical companies.

According to Lukman Mahfoedz, the development of the Senoro and Matindok fields will be delayed without buyers who can buy the gas at a high enough price.

"Pertamina and Medco need about $1.4 billion for the two blocks. Without credible buyers of the gas, we will face difficulties in securing investment in the upstream side.

"Thus, *the fields development* will be delayed once again," Lukman said.

"Gas ownership has been transferred from the government to a joint venture company, because the assets of the LNG plant *DSLNG* do not belong to the government."

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