Indonesia's LNG Supremacy Wanes as Chevron's Fields Run Short
Aug. 9 (Bloomberg) -- Indonesia may lose its dominance of the world's
liquefied natural gas market because fields operated by producers
such as Chevron Corp. are running out of gas faster than expected.
San Ramon, California-based Chevron, which supplies gas to the
world's largest liquefaction plant on the Indonesian part of Borneo
Island, told Indonesia's government on July 17 there isn't enough gas
to meet commitments to customers in Japan, South Korea and Taiwan.
Indonesia's LNG sales will fall 19 percent this year, according to
government shipment plans.
Indonesia, the world's top LNG supplier for three decades, is failing
to find new supplies of gas just as prices and demand for the cleaner-
burning fuel have surged to records. Buyers such as Osaka Gas Co. are
seeking supplies from countries such as Qatar, cutting revenue for
Southeast Asia's most populous nation and denting the government's
efforts to curb a budget deficit.
``If we can't attract investment in the gas industry for new
reserves, then there will be a decline as a major global supplier,''
Anton Gunawan, an economist for Citibank in Jakarta, said by
telephone Aug. 3. ``There will be a reduction in the foreign exchange
reserves.''
Indonesia started exporting LNG in 1977. It shipped 23 million tons
in 2005, more than Malaysia's 20.8 million or Qatar's 19.8 million,
according to figures from London-based BP Plc, the world's second-
largest publicly traded oil company.
Indonesia will probably fall to third place next year based on its
plans to cut cargoes. LNG is natural gas that has been cooled to
liquid form for transportation by ship to markets beyond the reach of
pipelines. Import terminals return the LNG to gas form so that it can
be sent through pipelines to customers such as factories, power
stations and households.
Russia, Australia
Utilities in Japan, the world's second-largest economy, are turning
to other markets for their future LNG needs.
Tokyo Electric Power Co. and Tokyo Gas Co., Japan's largest power and
gas suppliers, have signed up for LNG from Royal Dutch Shell Plc's
Sakhalin project in Russia to diversify supplies. Osaka Gas, Japan's
second-biggest gas distributor, is in talks with Tokyo-based oil and
gas producer Inpex Corp. about joining a $6 billion liquefied natural
gas project in Australia.
Japan buys 40 percent of the world's LNG and depends on Indonesia for
a quarter of its LNG imports, according to Japan's Ministry of
Finance. The gas is part of a strategy to reduce the country's
reliance on Middle East oil.
Local Political Pressure
``The Japanese must be pretty worried about what's happening in
Indonesia,'' Andy Flower, a former BP executive who now works as an
independent LNG consultant, said in a July 20 phone interview from
Surrey, England. ``There's no way they can renew the contracts and
fill the pipe.''
Calls from politicians including Vice President Jusuf Kalla to divert
Borneo gas to other parts of Indonesia have fanned concern about the
country's reliability as a supplier.
A contract to supply 12 million metric tons a year to Japan may not
be renewed when it expires in 2010 because gas production are being
earmarked for delivery to Java by pipeline, Energy Minister Purnomo
Yusgiantoro said in February.
Buyers are ``already outraged by our failure to meet commitments,''
Ari Soemarno, the head of the state oil company, PT Pertamina, which
negotiates Indonesia's LNG sales contracts, said. ``We're still
studying the impact of Chevron's statement.''
While buyers are seeking alternatives, suppliers in Indonesia such as
Chevron have become reluctant to invest in fields that may have to
supply markets in Java at lower prices than Japan, Indonesian
Petroleum Association Chairman Christopher B. Newton said in an
interview in Jakarta, Indonesia's capital.
Unocal Acquisition
All export contracts from the Borneo plant at Bontang, known as PT
Badak NGL, are up for renewal between 2009 and 2011.
Chevron acquired 247 billion cubic feet of gas in Indonesia, or 1.2
percent of its global gas reserves, when it paid $17.8 billion for
rival U.S. producer Unocal Corp. last year, creating the world's
fourth-largest publicly traded oil company.
``Unocal's reserves were a bit overstated,'' Kardaya Warnika,
chairman of Indonesia's oil and gas regulator BPMigas, said in a
phone interview on July 28. ``I don't know whether Chevron knew about
it before the takeover.''
Chevron informed BPMigas that reserves in a drilling area known as
Makassar are insufficient to meet a supply contract to customers in
Japan, Chevron spokeswoman Nicole Hodgson said on July 27. Under
supply contracts, the regulator will seek additional gas from other
producers.
Total, Vico
``We've already reduced our reserves in the books over previous
years,'' Hodgson said. ``But the deficiency in the Makassar
production sharing contract only became more apparent in recent
times,'' she said, declining to give details.
The Borneo plant is also supplied by fields operated by Paris-based
Total SA and Vico Indonesia, a joint venture between BP and Italy's
Eni SpA. Chevron and Vico have both failed to meet production targets
over the past two years.
``Total won't be able to compensate for the loss from Chevron,'' said
Ananda Idris, a spokesman for Total's Indonesian unit. Total is
producing 2.6 billion cubic feet a day, more than the 2.5 billion
cubic feet it's contracted to supply, Idris said. Vicky Aziz, Vico's
vice president of human resources and services, declined to comment
on Chevron's announcement.
Chevron is currently supplying 211 million cubic feet a day of gas to
Bontang, Hodgson said. That's about half of the 400 million cubic
feet a day the company is contracted to produce, according to
regulator BPMigas.
State oil company Pertamina has negotiated agreements with customers
to reduce Bontang shipments this year to 300 cargoes, or about 16.5
million metric tons, from an original commitment of 370 cargoes, or
20.4 million tons, Soemarno said on June 29.
``We may not be able to secure the same quantity from Indonesia after
the current contracts expire,'' said Katsuhiko Takahashi, a spokesman
for Kansai Electric, which buys 3.5 million tons a year from
Pertamina. ``We will ensure the supplies from other countries such as
Australia.''
To contact the reporters on this story:
Grace Nirang in Jakarta at [EMAIL PROTECTED];
Christian Schmollinger in Singapore at
[EMAIL PROTECTED]
Last Updated: August 8, 2006 19:15 EDT
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