CNOOC ‘open’ to possibility
of new price formula for

As the world’s third-largest liquefied natural gas (LNG) exporter behind Malaysia and Qatar, Indonesia is one step closer to renegotiating the price formula of the Tangguh gas sale to Fujian province, China, says a senior minister.

Speaking to reporters after a meeting with the chairman of China’s state-owned oil and gas firm CNOOC, Wang Yilin, on Friday, Energy and Mineral Resources Minister Jero Wacik said the new agreement on the Tangguh gas price would be reached by year’s end.

“I just met the CNOOC chairman who oversees Fujian and they [CNOOC] have agreed to renegotiate the LNG price,” he said in Jakarta.

New York-listed CNOOC Ltd., China’s largest producer of offshore crude oil and natural gas and a major subsidiary of CNOOC, holds a 13.9 percent stake in the massive British giant BP-operated Tangguh plant in Teluk Bintuni, West Papua.

BP holds a 37.16 percent stake in the Tangguh plant while the remaining stakes are held by MI Berau BV (16.3 percent), Nippon Oil Exploration (Berau) Ltd., (12.23 percent), KG Berau/KG Wiriagar (10 percent), LNG Japan Corporation (7.35 percent); and Talisman (3.06 percent).

Under a contract with China that was signed in 2002 under then president Megawati Soekarnoputri, the price of LNG from the Tangguh plant in Papua can be reviewed every four years.

Renegotiations between parties in 2006 succeeded in raising the price of LNG from US$2.40 per million British thermal unit (mmBtu) to a ceiling price set in the contract of $3.40 mmBtu.

In March 2006, then vice president Jusuf Kalla articulated his disagreement over the LNG deal with China, saying that the ceiling price was no longer relevant amid soaring global energy prices and prolonged domestic supply scarcity. Kalla later proposed for renegotiation of the LNG deal to China but the government’s effort became less apparent after he left office in October 2009.

On Friday, Jero acknowledged that the sale price of Tangguh gas to Fujian, which is currently $3.35 per million metric British thermal units (mmbtu), was too cheap compared with the LNG export price of $16 per mmbtu from the Bontang plant in Kalimantan and the domestic LNG price of $10 per mmbtu.

“The [Tangguh LNG price] does not make sense anymore,” said Jero. “No later than the end of this year a new agreement must be reached.”

CNOOC’s Wang did not comment to reporters.

During President Susilo Bambang Yudhoyono recent visit to China, one of the issues raised was reopening the possibility of a revision to the Tangguh gas sale to Fujian province contract.

Through his official Twitter account @SBYudhoyono, the President said Chinese leaders had “agreed” to renegotiate the Tangguh LNG price “so that Indonesia can get a bigger share”.

Separately,interim upstream watchdog SKKMigas head Rudi Rubiandini said that while the renegotiations had just begun,the government had yet to set a target for the price increase.

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