Wikileaks 96844 Indonesia LNG

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FACTBOX-Indonesia LNG plants, projects2009-07-06 06:08 (UTC)

JAKARTA, July 6 (Reuters) - Indonesia, the world's third-biggest liquefied natural gas(LNG) exporter, has dispatched its first shipment from Tangguh in Papua, a project ithopes will offset falling output in other ageing fields.

The first cargo from BP-led Tangguh is due to go to POSCO's LNG terminal inGwangyang, South Korea, energy watchdog BPMIGAS said in a statement.

The gas came from Tangguh's first LNG train, while the second train is expected to startoperating this quarter, BPMIGAS said.

The global economic crisis has pushed down LNG demand around the world and means

that Indonesia, which is behind Qatar and Malaysia as an exporter, should have moreavailable to supply, particularly with the Tangguh project coming on stream.

In the past, Jakarta has sometimes failed to meet its contractual commitments totraditional markets such as Japan, South Korea and Taiwan, often agreed more than adecade ago, as it has sought to switch more supply to the domestic market.

Here is an outline of Indonesia's LNG industry and upcoming gas projects:

Existing plants:

BONTANG - LNG production began at the Bontang plant in East Kalimantan in 1977.Bontang, one of the largest plants in the world, has 8 trains and a capacity of 22 milliontonnes a year (tpy), but output has declined due to a lack of available natural gas. VicoIndonesia, jointly owned by BP, Italy's Eni , Chevron and Total, supplies gas to Bontang.The plant is expected to produce about 17.2 million tonnes in 2009, down from 17.7million in 2008.

ARUN - Indonesia also launched LNG production at its Arun complex in Aceh provincein 1977, with 6 trains and a capacity of around 12 million tpy. Since 2000, LNGproduction at Arun has fallen as natural gas supplied by Exxon Mobil declines. Arun isexpected to produce 2.3 million tonnes of LNG in 2009, about the same in 2008.

TANGGUH - The BP-led project is the country's third LNG centre with a capacity toproduce 7.6 million tpy through 2 trains. Tangguh has several foreign supply contracts,including a 2.6 million tpy contract with China National Offshore Oil Corp (CNOOC).U.S. firm Sempra Energy also has a 20-year contract to lift 3.6 million tpy with the rightto divert half to customers other than its own terminal in Mexico. There are also supplycontracts with South Korean firms K-Power and POSCO.

Planned projects:


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KUTAI BASIN - Chevron Corp is due to decide whether to move to final design on theKutai Basin natural gas project off East Kalimantan by the end of 2009 and a finalinvestment decision is likely in 2011. The Makassar Strait project would have the deepest

offshore gas fields in Indonesia, at depths ranging from 2,500 to 6,000 feet (760-1,800metres). Chevron had said it plans an investment of about $6 billion in the fields, whichhave combined natural gas reserves estimated at over 3 trillion cubic feet (tcf).Indonesia's energy minister said the project had agreed to supply up to 25 percent of gasto domestic users, which could provide 0.7-0.8 million tonnes of LNG a year. Some ofthe gas from Kutai will also be supplied to Bontang.

MASELA - Indonesia is considering building an onshore LNG plant for natural gasreserves from the Timor Sea, energy minister Purnomo Yusgiantoro said. Japan's InpexCorp, which is the operator of the Abadi field in the Masela block, had earlier proposedbuilding a floating LNG plant, which the oil watchdog had estimated would cost $19.6

billion. The field is estimated to have more than 10 trillion cubic feet of natural gasreserves and is expected to be on stream in 2016.

NATUNA D-ALPHA - Indonesia's state energy firm Pertamina expects the Natuna Seanatural gas project to come onstream in the next 8-9 years. The Natuna D-Alpha block,which has about 222 trillion cubic feet (tcf) of gas reserves and will require about $40billion investment, is the subject of a dispute between Exxon Mobil and the government.Indonesia said last year it had awarded Pertamina the operating right, but Exxon has saidits contract is valid until 2009. Pertamina does not have the technical expertise orfinancing to develop the project alone and has named eight firms -- Petronas, ExxonMobil, Chevron, Total, Royal Dutch Shell, StatoilHydro, Eni and China National

Petroleum Corp -- as potential partners.

DONGGI-SENORO - Pertamina, Indonesian energy firm Medco and Japan's MitsubishiCorp. have agreed to build the $1.4 billion Donggi-Senoro LNG plant in Sulawesi, with acapacity of 2 million tonnes per year. It will receive natural gas supplies from Pertaminaand Medco. The government, Pertamina and Medco are still in negotiations reviewing thenatural gas price to the plant, which is expected to be operational in 2012 or 2013.http://www.xe.com/news/2009-07-06%2002:08:00.0/530345.htm?c=3&t=108

Tangguh LNG


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Tangguh LNG is the third LNG hub in Indonesia. In March 2005 the Government ofIndonesia gave the go ahead for the Tangguh LNG project in Bintuni Bay of West Papua.Taking its name from the Indonesia word for "resilient and strong", Tangguh is centeredon the Bintuni Bay area of Papua, Indonesia - around seven hours flight from Jakarta.With 37.16% interest in the project, BP Indonesia is the operator of Tangguh under aproduction sharing contract with BPMIGAS (Indonesia's regulatory body for oil and gas

upstream activities).In October 2007 the project completed its planned loan agreement totaling US$3.5 billionwith several international banks to finance the development of the LNG plant. Theexternal financing highlights investors' confidence in the project.Project location and dimensionsThe Project involves the tapping of six fields to extract combined proven reserves ofaround 14.4 trillion cubic feet of clean gas. Two normally unmanned offshore productionplatforms located in Bintuni Bay will collect gas from the reservoir, then send it throughsub-sea pipelines to an LNG processing facility on the south shore. From here, LNG willgo to energy markets using LNG tankers.

Enlarge imaged

The LNG processing plant will initially consist of two trains (the units that purify andliquefy gas), producing at least 7.6 million metric tons of LNG a year. Other facilities at


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the site includes storage tanks, an LNG tanker loading terminal, as well as maintenancefacilities, offices and a personnel accommodation complex.

LNG sales and future expansion

The Tangguh LNG plant has already secured long term LNG sales to four customers. Itwill deliver LNG to the Fujian LNG project in China, K-Power Co., Ltd in Korea,POSCO in Korea and Sempra Energy LNG Marketing Corp. in Mexico. Over time, plantcapacity may be expanded to support new sales commitment.

Sustainable development

The Tangguh LNG Project provides an innovative approach to sustainable development,

cultural preservation and biodiversity conservation. From the outset, this hugeundertaking has been designed and implemented with a number of key principles in mind:community, partnership, consultation and corporate responsibility.http://www.bp.com/sectiongenericarticle.do?categoryId=9004779&contentId=7008759

INDONESIA LNG SNAPSHOT

GLOBAL LNG APEC/GTI

Indonesia LNG SnapshotStartup

Original Capacity Add-OnCapacity (1)

(2)

Total Working

Original/Add-On

Nameplate(MTA)

Working(MTA)

Nameplate(MTA)

Working(MTA)

Capacity2002

(MTA) (3)

Bontang:1977original/new trains:

2/1983;1/1989;1/1993;1/1997;1/2000

A-B 2 x 2.15 2 x 2 .60 C-D - 2 x2.15

E-F- 2 x2.30;

G-2.60H- 3.00

17.6(C-D 2 x

2.3;E-F-2 x

2.5;G-2.9,H- 3.3)

Trains A-Bdebottlenec

k to3.2 each

22.2


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Aceh:1978 3 original/new trains

2/1983-41/1986

3 x 1.50 3 x 1.70 3 x 1.50 # 1-3Debottleneck increases

each train to2.9

#4-6:Debottlenec

k increases

each train to3.5

TrainClosures

4/2001:#2mothballedcuts 2.9;#6

mothballedcuts 3.50

12.8

TOTAL 35.0

2P Reserves Production (Export)

Gas(TCF) (4)

Condensate(million BBLS) (5)

Gas(million

CF/day) (6)

Condensate(MBD) (7)

MajorProductionFields (8)

National: 134.1Bontang: 24..8

Arun: 5.6

620345

30

6,8042,841

694;(3,381)

1087812

(54)

Bontang:Sanga Sanga,OffshoreMahakam,EastKalimantanPSCs(includesBadak, Nilam,Tunu,Tambora, Sisi,Nubi, NWPeciko,Semanlu gasfields andassociated gasfrom Handil,Attaka,Bekapai);Arun: NorthSumatra 'B'Block (single,

giant gas field),NSO Block (A, J1, J2 gasfields)

Initial Cost Roughly $1.2-1.5 billion each forBontang and Aceh on two trainsand three trains, respectively.Further LNG investment since1980 more than $10 billion.

Ownership Upstream Bontang supplied by OffshoreMahakam PSC (50% Total, 50%Inpex), Sanga Sanga PSC(23.13% Vico, 26.25% ENI (ex-Lasmo), 26.25% BP, 20% CPC


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Taiwan, 4.37% Universe Gasand Oil (Osaka Gas) and EastKalimantan PSC (100% Unocal).Aceh 100% ExxonMobil NorthSumatra PSC (of whichPertamina takes 70% of output)

Ownership Downstream (9) P.T. Badak NGL Co. at Bontang(55% Pertamina, 20% Vico, 15%Japan Indonesia LNG Co.); P.T.Arun NGL Co. at Aceh (55%Pertamina, 30% ExxonMobil and15% Japan Indonesia LNG Co.

CONT'D NEXT PAGE

http://www.apecconsulting.com/PDF/WebIndonLNGSnapshot.pdf

Indonesia plans Floating LNG terminal in N. Sumatra

Tue, Mar 31, 2009 | News

Indonesia plans LNG floating receiving terminal in N. Sumatra

JAKARTA, March 30 (Reuters) - Indonesia plans to build a liquefied natural gas (LNG)floating receiving terminal in North Sumatra to secure natural gas supplies for a powerplant in the area, the mines and energy minister said on Monday.

Indonesia is seeking alternative sources of energy such as natural gas and coal to meetrising domestic demand for power and to reduce consumption of crude oil as its reservesdwindle. The new LNG terminal would supply state electricity firm PT PerusahaanListrik Negara (PLN).

As the worlds number three LNG exporter after Qatar and Malaysia, it has in the pastfailed to meet its contractual commitments to traditional markets such as Japan, SouthKorea and Taiwan, often agreed more than a decade ago, as it seeks to switch moresupply to the domestic market.


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PLN badly needs more gas supply for its power plant in North Sumatra. We willanticipate by building an LNG floating receiving terminal there, Purnomo Yusgiantorotold reporters.

Yusgiantoro said he has asked state gas firm, PT Perusahaan Gas Negara Tbk (PGN), tobuild the terminal.

PGNs president director Hendi Prio Santoso said the terminal is expected to have acapacity of around 150 million cubic feet of gas per day. He did not give a figure for theinvestment required.

Building floating LNG receiving terminal is quicker compared with gas pipeline. Wewill talk to BPMIGAS to see how we will get the LNG for this terminal, Santoso said.http://www.lngpedia.com/indonesia-plans-lng-floating-receiving-terminal-in-n-sumatra/

Indonesia's LNG terminal faces delays

By Upstream staff

The construction of Indonesia's first liquified natural gas receiving terminal may bedelayed by funding woes and differences over plant specifications, a senior official ofstate power company PT Perusahaan Listrik Negara (PLN) said today.

A consortium of PLN, PT Perusahaan Gas Negara (PGN) and state oil companyPertamina initially planned to build the 3-million-tonnes per year LNG receiving terminalwhose construction was expected to be completed in 2012 or 2013.

A PGN official has been previously quoted by the Bisnis Indonesia daily as saying thealternatives were to build a mini terminal with an annual capacity of 1.5 million tonnes ora floating terminal with capacity of 1 million tonnes a year.

PLN needs the LNG receiving terminal to secure gas supply for its gas-fired power plants,especially on the island of Java.

Indonesia, now the world's number-three LNG exporter after Qatar and Malaysia, isboosting use of energy sources such as natural gas to reduce oil use because of highprices and dwindling domestic supply.


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"PLN want the consortium to stick with the original plan to build the LNG terminal onland in West Java," Reuters quoted Fahmi Mochtar, the company's president director, astelling reporters.

"If the consortium changes the original plan then PLN will not join the project."

Indonesia's Bontang LNG plant, in East Kalimantan, has pledged to supply the domesticLNG receiving terminal with 1.5 million tonnes annually.

Indonesia is also set to supply some of the LNG from its Tangguh plant in Papua to thedomestic market. Indonesia is counting on BP-led Tangguh to help offset decliningproduction at older projects.

It has far more gas than oil but has limited supplies for its own use due to long-term LNG

export commitments, which it is reviewing.Wednesday, 17 December, 2008, 10:33 GMT | last updated: Wednesday, 17 December,2008, 10:44 GMThttp://www.upstreamonline.com/live/article168395.ece

ENERGY NEWS

INDONESIA: TROUBLES IN INDONESIA'S LNG INDUSTRY

Summary:

Declining production and the GOIs January 2005 decision to defer and cancel 51 liquefied

natural gas (LNG) cargos this year are the most visible signs of trouble in Indonesias LNG

industry.

LNG producers and buyers are concerned that poor policy and weak government

management threaten Indonesias competitiveness.

Protracted negotiations between the GOI and a BP consortium to develop a third LNG center


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at Tangguh will delay new LNG production until 2008.

Despite abundant natural gas reserves, Indonesia will very likely continue to lose world

market share and LNG revenue.

The industry wants the GOI to strengthen LNG governance and reviseor clarify key regulations to improve the health of the sector.

Download this document in PDFfile

Background

Indonesia began LNG production in 1977 and is the worlds first and largest LNG

producer. Output dropped by 3.5 percent in 2004 to about 25.5 million tons (MT), down from a

peak of 28.9 million tons in 1999. The country has two LNG centers PT Arun in Aceh province

and PT Badak at Bontang in East Kalimantan province. ExxonMobil (EM) provides onshore and

offshore natural gas for LNG at Arun, a six-train facility with a production capacity of 12.8 million

tons per annum (mtpa). French Total, Anglo-Italian joint venture VICO Indonesia and U.S. Unocal

provide natural gas from onshore and offshore fields for LNG production at the PT Badak plant in

Bontang, an eight-train facility with a production capacity of 21.63 mtpa. A third (two-train, 7 mtpa)

LNG production center at Tangguh in West Papua, operated by Anglo-American BP, with

significant Chinese and Japanese shareholdings, should come on line in 2008.

LNG contributes substantially to the Indonesian economy. In the 1990s, oil and gas revenues, of

which LNG represents about half, comprised nearly 27 percent of the countrys domestic budget

revenues. Today, that number remains over 23 percent. In 2004, high crude oil prices helped

raise LNG exports to a record $7.7 billion, 11 percent of Indonesias $69.7 billion in total exports.

Indonesias LNG buyers include Japan (71 percent share), South Korea (20 percent), and Taiwan

(9 percent). Beginning in 2007, Indonesia is contracted to ship LNG to the Chinese National


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Offshore Oil Corporations (CNOOC) planned Fujian terminal in China, U.S. Sempra Energys

proposed Baja California terminal, and South Koreas SK-POSCO. Indonesia continues to have

the best hydrocarbon potential in Southeast Asia, with a reputed 178 trillion cubic feet (TCF) of

proven and probable gas reserves.

Indonesian LNG Statistics

Year Volume (MT)Revenues(billion US) % GDP

World MarketShare

1998 26.912 3.389 3.4 32%

1999 28.955 4.489 3.2 32%

2000 26.991 6.802 4.4 26%

2001 23.882* 5.375 3.8 22%

2002 26.225 5.595 3.2 23%

2003 26.404 6.586 3.1 21%

2004 25.504 7.767 3.1 n/a

*Arun production shut down for four months for security reasons (see below).

Arun LNG Challenges

Acehs gas production peaked in 1995 and is now on a steady decline. Three LNG trains are

currently used, producing about 6 mtpa. Several factors affect LNG production at Arun:

- Declining reserves: 90 percent of Aruns gas resources are now depleted and committed

reserves will run out entirely in 2018. The Block A gas field in North Aceh remains

undeveloped pending an agreement between operator ConocoPhillips, partner ExxonMobil

and the GOI on revenue sharing terms.

- Security: in 2001, PT Arun closed down natural gas production for four months when clashes

between the military and Acehnese separatists threatened worker safety. The shutdown

halved Aruns production that year and marked the first disruption of Indonesian LNG to its

buyers.

- Fertilizer plants: the GOI requirement to provide low-cost natural gas to national fertilizer

plants has reduced LNG production and caused state-owned Pertamina (which operates


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Arun) to defer 6 cargoes to Japanese and Korean buyers from 2004 to 2008. The GOI

convinced buyers to defer an additional 9 cargoes for 2005.

Bontang LNG Challenges

Bontang currently produces about 20 mtpa of LNG. It began experiencing LNG shortfalls in 2004,

causing the GOI to ask its Japanese buyers to cancel 41 LNG cargoes for 2005. Maintaining

Bontangs production has its own set of challenges:

- Gas supply problems: the three gas providers (Total, VICO and Unocal) have experienced

underproduction or inconsistent production due to maintenance, accident or low field

performance.

- Lack of investment incentives: Bontangs LNG sales contracts have no penalties for non-

performance; i.e., the producers bear no additional cost to the buyers for failing to meet

contract obligations. Questions over who is responsible for maintenance and repair at the

aging PT Badak facility, as well as potential future charges by its operator Pertamina, have

slowed investment in the facility.

- Fertilizer plants: despite LNG shortfalls, the GOI diverts gas from Bontangs producers so

that Pertamina can sell subsidized gas to a national fertilizer plant group and two small

Japanese-owned plants.

Fertilizer Policy Costs Indonesia

The cost of the GOI policy to support the national fertilizer industry is high. Aruns six-cargo

deferment last year cost Indonesia about $130 million in LNG revenues, of which Aceh province

would have received approximately half. (Note: under Special Autonomy, Aceh receives 70

percent of the GOIs 70 percent gas share.) The 9 cargo deferral for 2005 will cost the country

about $180 million. The GOI wants Arun to supply gas instead to two Aceh fertilizer plants at a

subsidized price of $2.30/mmbtu, about one-third its LNG value. The combined effect of declining

production and support to the fertilizer industry could lead Indonesia to defer, or spot purchase,

as many as 14 Arun cargoes in 2006 and 28 Arun cargoes in 2007.


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At Bontang, the costs of GOI support to the fertilizer industry are even higher. Although there is

no gas supply agreement between Pertamina and the petroleum companies (Unocal, Total and

VICO), it diverts 400-450 mmcfd of gas from LNG production for sale to the fertilizer

industry. That gas volume is the equivalent of 40-45 LNG cargoes, or the same number of

Bontang cargoes that Indonesia will cancel to its Asian buyers this year. The value of the

cancelled cargoes is estimated at $800-900 million, of which the GOI would have netted

half. Instead, Pertamina will use the gas domestically to the fertilizer industry for under than

$2.50/mmbtu, less than half the average Bontang LNG contract price.

There are several explanations for the GOIs support to the fertilizer industry. One reason is the

importance the government places on ensuring sufficient fertilizer for the countrys large

agricultural sector. Another reason is jobs each state-owned fertilizer plant employs over 1000

people. Skeptics wonder if these state-owned plants also provide rent-seeking opportunities.

LNG Management: Too Many Cooks

A primary factor hurting Indonesias LNG future development is weak government management

over the sector. Prior to 2002, Pertamina was the GOIs single coordinator for LNG management,

production, sales and marketing. With the unbundling of the sector under the 2001 Oil and Gas

Law and the creation of upstream authority BPMIGAS in 2002, there are now several entities

involved in LNG governance the Energy Ministry, the Finance Ministry, Pertamina, and

BPMIGAS. This has raised a number of questions, including which parties have control over

LNG assets, which parties are authorized to negotiate and sell future LNG contracts, and what

happens to Pertaminas existing financial and contractual LNG obligations.

This ambiguous arrangement makes it difficult for the GOI to oversee decisions that affect theoverall health of the LNG industry. In 2001, Japans Western Buyers (the group of companiesoriginally contracted to purchase LNG from Arun in Western Indonesia) negotiated a lower pricewith Pertamina for the Arun II contract extension. That prompted Japans Eastern Buyers(companies buying LNG from Bontang in Eastern Indonesia) to invoke the fair and equitabletrade clause in its Bontang contract. This forced Unocal, VICO and Total to tie their LNGcontract price to a crude oil price ceiling of $24/barrel. To date, these actions have costIndonesia and the Bontang suppliers $700 million between 2002-2004 and an estimated $200million in 2005.


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Similarly in 2002, Arun and Bontang producers complained that the low LNG price negotiated by

BPMIGAS, BP and China for the Fujian LNG sales contract undercut the long-term viability of

Indonesias higher-priced, existing LNG contracts. It was like the 3 million ton tail wagging the 27

million ton dog, complained one executive, referring to the volume difference between the Fujian

and existing LNG contracts. The current amalgam of LNG sellers is unlikely to improve soon

Pertamina is reportedly not eager to play a subordinate role to BPMIGAS and has carved out

authority to remain the governments negotiator and seller of record for Japans LNG

contracts.

The Tangguh project is a good example of how these problems concern buyers and delayIndonesias future LNG development. Despite the fact that Tangguh straddles a large 14 TCFgas resource during a period of growing demand, it took over two years to find enough LNGbuyers to make the project viable. It took the GOI over three years to issue implementingregulations that would permit BP to seek Tangguh contract area extensions covering the lifespanof its LNG commitments. For delays ensured when the BP consortium, which is also the GOIsseller of record for Tangguh LNG, asked the GOI sign a shared liability agreement to protect theproject against future GOI decisions harmful to the LNG industry.

After Tangguh, What?

As industry press casts a rosy glow over LNG production growth for competitors such as Qatar,

Russia, Malaysia and Australia, Indonesia has few significant LNG development projects on thehorizon. Unocals Gendalo deepwater gas project in offshore Kalimantan could come online in2010, but this would only maintain Bontangs LNG production. Pertamina occupies potentiallylarge gas tracts suitable for LNG development, such as Donggi in South Sulawesi, but lacks themoney to explore and develop them alone. Foreign companies are interested in joint ventures,but need clarity on LNG management and regulations imposing new taxes and domestic marketobligations for natural gas. As a result, outside of Tangguhs 6.3 mtpa commitments, Indonesiascontracted LNG volumes will not grow this decade:

LNG Contracts (in million of metric tons)

Importer 2004 2005 2006 2007 2008 2009 2010

Japan 18.18 15.63 15.63 15.63 15.63 15.63 15.63S.Korea 5.3 6.35 4.05 4.05 4.05 4.05 4.05

Taiwan 3.42 3.42 3.42 3.42 3.42 3.42 1.84

China 0 0 0 2.6 2.6 2.6 2.6

U.S. 0 0 0 3.7 3.7 3.7 3.7

TOTAL 26.9 25.4 23.1 29.4 29.4 29.4 27.82

Remedial Action Needed


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Industry associations have outlined to the GOI a number of steps that would improve the health ofthe LNG sector:

Strengthen LNG Governance. Establish clear lines of authorityregarding LNG assets and management. Negotiate future sales contracts with onevoice and with regard to the effect on existing contracts.

Remove Constraints on LNG Growth. Revise or clarify laws and regulationsthat hurt the economics of LNG development and inhibit new investment, such asdomestic market obligations and proposed taxes during exploration.

Rationalize Policymaking. Find a balance between supportingthe domestic fertilizer industry and meeting export commitmentsthat is based on economic value and which restores Indonesiasreputation as a reliable LNG supplier

http://www.usembassyjakarta.org/econ/LNG_reports.html

Donggi LNG Terminal in Trouble as

Indonesian Government Announces Gas

Supply Diversion

19 Jun 09

Indonesia's vice-president Jusuf Kalla has announced that gas production from the

Senoro and Matindok fields will be allocated for the domestic market, undermining plans

for the Donggi-Senoro LNG export terminal.

IHS Global

Insight

Perspective

SignificanceThe government's decision will significantly shift rates-of-return on theDonggi terminal and is therefore likely to undermine Mitsubishi'sinterest in the project. The Japanese company entered into the projectwith the understanding that 100% of LNG output would be exported.

ImplicationsWhile project partner Medco Energi is still interested in the project(perhaps due to the recently negotiated rises in feed gas prices fromfields in which it has a stake) the government's decision could causeMitsubishi to reconsider its participation in the project, perhaps leadingthe company to reduce its stake or in the worst case scenario withdrawcompletely.

OutlookThe government's decision will damage investor confidence inIndonesia's LNG sector by underlining the potential financial risks ofcommitting capital to new projects. At the same time gas re-allocationpromises to reduce gas deficits at many of Indonesia's fertiliser plants,


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helping the government's broader aim of expanding gas usage to reduceIndonesia's oil import dependence, and increasing utilization of cleanerforms of energy.

Beginning of the End for Donggi?

The Donggi LNG terminal in Indonesia has run into trouble following the announcementby vice-president Yusuf Kalla that natural gas output from the Senoro and Matindokfields intended to supply the terminal would instead be allocated to the domestic market."We cannot export gas overseas, while at the same time our industry faces gas shortages.Independence in energy is critical," said Kalla, quoted by theJakarta Postnewspaper.Kalla also emphasised that the decision was final and had been taken collectively by thegovernment and President Susilo Bambang Yudhoyono. However, NOC PT Pertamina

(which holds a 29% stake in the LNG terminal project) has argued that gas from the twofields should be used both to supply the LNG plant for exports and for the domesticmarket. Pertamina said the scheme would work if at least 250 mmcf/d of gas was soldfrom the Senoro field and 85 mmcf/d from the Matindok field at a price ofUS$6.16/mmBtu, while 70 mmcf/d of gas could be distributed to domestic petrochemicalcompanies at a price of US$3.17/mmBtu. Partner Medco E&P (who owns a 20% stake inthe terminal project) also said this was a better scenario, but that the final decision was upto the government. Japan's Mitsubishi also holds a 51% stake in the terminal project.

The government's announcement is the latest problem to beset the Donggi LNG terminalproject, casting doubt over its economic viability. The government's decision to push upthe price of gas from the Senoro-Donggi fields last month has already reduced thepotential rate of return on investments for the terminal, undermining projecteconomics (seeIndonesia: 28 May 2009: Indonesian Government Pushes Gas PriceHike for Sulawesi LNG Terminal). In November 2008 there were also doubts overwhether the gas reserve-potential at the fields was sufficient to feed the proposed terminal.Although reserves appear to have since been shored up, doubts remain as to whether thefields can meet both local demand and LNG exports, as is stipulated in Pertamina andMedco's plan (seeIndonesia: 6 November 2008: Gas Reserve Study Puts Feasibilityof Indonesias Donggi LNG Terminal in Doubt). However, the problem of gasallocation is perhaps the most serious affecting the project so far. In a warning shot to theproject partners, Kalla announced earlier this month that output from the Donggi-Senorofields would be prioritised to the domestic market. Now the government's position hashardened. According to Platts, Kalla is seeking 1 2 million t/y of LNG from theterminal to feed a proposed fertiliser factory in south-east Sulawesi while the rest wouldbe sold to local industries in Java, eastern Indonesia, and other provinces. Only afterthese consumers were adequately supplied would LNG be available for export to Japan.Kalla has further threatened to sue any company that attempts to export LNG beforemeeting domestic demand. This warning appears to be directed at Mitsubishi given that ithad signed heads of agreements (HoA) for export of LNG to Japanese utility firms ChubuElectric and Kansai Electric earlier this year.


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Uncertainties and inconsistencies remain, however, over the government's gas allocationprogramme. In particular, over whether natural gas or LNG would be allocated to thedomestic market. If the terminal would supply LNG to local fertiliser companies and

other domestic users as Kalla is reported to have said, this would require significantinvestments in LNG re-gasification facilities in Indonesia.

Outlook and Implications

What impact is the government's decision likely to have on the Donggi-Senoro LNGproject? It is likely to quite seriously undermine Mitsubishi's interest in pursuing theproject as the potential revenues for supplying the domestic market with LNG areconsiderably lower than for the export. Mitsubishi entered into the project with theunderstanding that 100% of the terminal's output was to be exported, so the government'sannouncement is likely to have fundamentally changed the project's economics. Indeed,

the terminal's total capacity was due to be 2 million t/y, which suggests that very littlesurplus LNG would be available for export if the government allocates between 1 and 2million t/y to fertiliser plants, with additional volumes going to local industries.Mitsubishi is probably now waiting on the results of Pertamina and Medco's request tothe government to adopt a compromise solution to supply both the domestic and exportmarket. However, Pertamina has stated that supplying both markets will cause potentialdelays to the project's original start-up date of 2012 (possibly due to the need for furtherexploration at the gas fields), which will make this option less attractive for Mitsubishi.Moreover, the date on the official letter requesting Jusuf Kalla to reconsider gasallocation plans was 8 June and the government has still not softened its position. If thegovernment's supply allocation programme goes ahead, Mitsubishi is likely to reduce its

stake in the project and could even exit the venture altogether. The government however,appears ready for this eventuality. The Antara news agency quoted Kalla as saying, "itwill not be a problem whether or not (the Japanese investor) will withdraw its investment.Go ahead". While Indonesia's oil and gas regulator BPMIGAS has said it is now up to theproject partners to determine whether the Donggi LNG terminal is still financially viable,Medco has reiterated its commitment to the project. Whether the terminal will be droppedcompletely or not will depend first on whether the government is prepared to accept acompromise supply allocation proposal, and second on the projected cost of re-gasification facilities, which will need to be constructed if domestic consumers are to besupplied with LNG as opposed to natural gas. However, unlike Mitsubishi, bothPertamina and Medco Energi have incentives to stay in the terminal project due to the

recent feed-gas price rise from the fields.

The government's decision will have a negative impact on attracting investment intoIndonesia's LNG sector. The government's abrupt changing of allocation terms withsignificant implications for project economics is damaging to investor confidence. Indeed,other potential investors may also worry about financial security in such projects.Redirecting exports to the cheaper domestic market could also lower government revenuefrom the project, previously estimated at US$5.7 billion. At the same time thegovernment's decision will help reduce chronic gas shortages in Indonesia that forcemany fertiliser plants to function below full capacity. This will have positive knock-on


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effects on the agricultural sector and for the government's broader aim of expanding gasusage to reduce Indonesia's oil import dependence and increase utilisation of cleanerforms of energy.

http://www.globalinsight.com/SDA/SDADetail17101.htm

Liquefied Natural GasMedia reports suggest that Indonesia was surpassed by Qatar in 2006 as the single largestexporter of LNG.Indonesia is a leading LNG exporter. Indonesia was the worlds largest exporter of LNGin 2005, although some reports suggest that the country was surpassed by Qatar sometime

in 2006. During 2005, Indonesia exported 23 million tons (MMt, or 1,123 Bcf) of LNG,or about 16 percent of the world total.Indonesia produces LNG from two terminals: the Bontang facility in Badak, EastKalimantan and the Arun plant in North Sumatra. The Bontang LNG terminal wasIndonesias first to begin commercial operations, shipping its first LNG exports in 1977.The eight-train Bontang plant is the largest LNG facility in the world, with a capacity toproduce 21.6 MMt/y (1.1 Tcf/y). However, production has stood below full capacity inrecent years, with 2004 output estimated at 19.6 MMt (955 Bcf) of LNG. The Bontangterminal is operated by PT Badak NGL Company, 55 percent owned by PT Pertamina, 20percent by Vico (a BP-Eni joint venture), 10 percent by Total, and 15 percent by theJapan Indonesia LNG Company (JILCO). Recently, the Bontang plant has faced

underproduction for a variety of reasons, which forced the Indonesian government todivert some natural gas supplies to domestic fertilizer companies. In 2005, Bontang LNGsupply contracts were renegotiated so that more of the projects output could supplydomestic customers.The Arun LNG facility is operated by PT Arun Natural Gas Liquefaction Company,which is 55 percent owned by PT Pertamina, 30 percent by ExxonMobil, and 15 percentby JILCO. Arun is a six-train facility with a total capacity to produce more than 10MMt/y (487 Bcf/y) of LNG, although in 2004 production stood at 6.4 MMt (312 Bcf).ExxonMobil supplies LNG for the Arun plant from its nearby Aceh fields, although thecompany estimates that it has depleted 90 percent of the recoverable reserves. Thisshortfall also contributed to the governments effort to redirect some natural gas

production designated for export to domestic users. In 2005, this forced the Indonesiangovernment to turn to spot LNG markets to meet its contractual obligations to foreignbuyers.Tangguh LNG ProjectOne project that holds promise for Indonesia's future in worldwide LNG markets is theBP-led Tangguh project in Papua province. The Tangguh fields contain 14.4 Tcf ofproven natural gas reserves found onshore and offshore the Wiriagar and Berau blocks.The project received final approval from the government of Indonesia in March 2005,and is led by its operator BP (37.16 percent stake) and a consortium including the ChinaNational Offshore Oil Corporation (CNOOC, 16.96 percent), Mitsubishi (16.3 percent),


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Nippon Oil (12.23 percent), KG (10 percent), and LNG Japan (7.35 percent). The firstLNG train is set to begin production in 2007, with the second due for completion by 2009.The project will initially supply 4.2 MMt/y (205 Bcf/y) of LNG, eventually reaching 8.4

MMt/y (410 Bcf/y) when both trains are producing. According to BP, the Tangguh LNGfacility has already secured four long-term LNG sales contracts, including: the FujianLNG project in China, K-Power in Korea, POSCO in Korea, and Sempra Energy inMexico.http://www.eia.doe.gov/emeu/cabs/Indonesia/NaturalGas.html

MI: INDONESIAN NATURAL GAS UPDATE FOR APRIL

SUMMARY:ExxonMobil stopped production of natural gas from its Arun, SouthLhoksukon, and Pase gas fields in north Aceh on March 9 as a result of a deterioratingsecurity situation. The resulting loss of natural gas feedstock required Pertamina to shiftLNG deliveries from the Arun plant to Bontang, Indonesias second LNG plant in EastKalimantan. Earlier, Indonesia established its status as an exporter of piped gas with aJanuary 15 ceremony marking first deliveries of natural gas to Singapore from its WestNatuna fields. Pertamina delivered the gas in partnership with a consortium comprised ofCanadian-based Gulf Indonesia, U.S.-based Conoco, and U.K.-based Premier. Indonesiafurther cemented its status as a piped gas exporter with a February 12 contract signingbetween Pertamina and Singapores Sembcorp and a March 29 signing betweenPertamina and Malaysian state-owned petroleum company Petronas. Even with these

deals, Conoco has a further 500 billion cubic feet of natural gas reserves available fromits West Natuna Block B. Indonesia has taken further steps to construct a ninth LNG trainat Bontang. Gulf Indonesia has increased its capital expenditure budget for 2001 by 50percent to US $150 million.End summary.

ExxonMobil Stops Aceh Onshore Production

ExxonMobil Indonesia suspended natural gas production on March 9 from its onshoreArun, South Lhoksukon, and Pase fields in north Aceh due to deteriorating security.Company representatives explained that, while clashes between separatist Free AcehMovement (GAM) forces and the Indonesian military contributed to an increasingly

tenuous situation over the last two years, attacks and harassment were increasinglydirected to ExxonMobil facilities and personnel from January 2001. ExxonMobil isengaged in discussions with Pertamina regarding resumption of its operations.

Facilities which depended on ExxonMobils natural gas and condensate supplies theArun LNG plant, fertilizer plants PT Pupuk Iskandar Muda and PT ASEAN Fertilizer,and the Humpus Aromatics plant -- were also forced drastically to reduce output orsuspend operations. ExxonMobil continues to produce 300 million standard cubic feet ofgas per day from its North Sumatra Offshore (NSO) field, sufficient to maintain minimalsafety and electrical systems at its own operations and the associated facilities. With


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Aruns production reduced to a mere trickle, Pertamina said, of the ten cargoescommitted from Arun in March, eight were delivered from inventories and the BontangLNG plant, Indonesias second plant in East Kalimantan. Malaysia supplied the

remaining two cargoes.

Pertamina Delivers First Gas to Singapore

Pertamina and Singapores SembCorp Gas Pte Ltd celebrated the first delivery of naturalgas on January 15, exactly one year after signing a gas sales agreement (GSA). The GSAprovides for the supply of 325 million standard cubic feet per day (mmscfd) fromIndonesias West Natuna fields to Jurong Island and Tuas, Singapore for a period of 22years. SembGas has a take-or-pay requirement while Pertamina is obliged to invest inspecified facilities to deliver a minimum of 12 years of gas whether or not it iseconomical to do so. Sales revenue is projected to reach US $8 billion over the contract

term.

The gas will be delivered from three production blocks - the West Natuna Sea Block B,operated by Conoco Indonesia; the Kakap Block, operated by Gulf Indonesia Resources;and Natuna Sea Block A, operated by Premier Oil Natuna Sea Limited. The threeproduction sharing contractors (PSCs), acting as the West Natuna Group (WNG),partnered with Pertamina to form the West Natuna Gas Consortium (WNGC). WNGCinvested US $1.5 billion to construct the West Natuna Transportation System, a 656-kilometer underwater pipeline system with six distinct parts and one of the longestunderwater pipelines in the world. The pipeline has a current capacity of 700 millionstandard cubic feet per day with the capacity to expand to one billion standard cubic feet

per day with additional gas compression.

Pertamina to Export South Sumatra Gas

Indonesia and Singapore concluded another gas sales agreement February 12 in whichPertamina committed to supply natural gas to Gas Supply Pte Ltd., a Singapore Powersubsidiary, via a 500-kilometer pipeline that must be operational in 30 months. Under theterms of the 20-year contract, Pertamina will start selling gas to Singapore in mid-2003 at150 million cubic feet per day (mmcfd) stepping up to 250 mmcfd by 2009. At currentprices, the project will generate US $9 billion dollars in gas sales revenue over its 20-yearlife, while sales of associated condensate and liquefied petroleum gas (LPG) could bring

in another US $4 billion. The gas will be supplied from three fields in South Sumatra -the Jabung Block operated by Santa Fe, a subsidiary of Oklahoma-based Devon EnergyCorporation; and the Corridor and South Jambi B Blocks, both operated by GulfResources. Talisman is partnered with Gulf in the Corridor Block, while Amerada Hessand Kerr-McGee are partnered with Santa Fe in the Jabung Block.

Pertamina and Petronas Sign Gas Supply Agreement

Pertamina President Baihaki Hakim signed a contract March 29 with his Malaysiancounterpart, state oil and gas company Petronas President Mohammad Hassan Marican,


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to deliver natural gas from the West Natuna area to Malaysia. Under the deal, Pertaminawill supply Petronas will a total of 1.5 trillion cubic feet (TCF) of natural gas over a 20-year period, generating approximately US $4 billion in gas sales revenue for the West

Natuna Block B gas fields operated by Conoco Indonesia. Associated condensate andnatural gas liquids will bring another estimated $4 billion.

A subsea pipeline will deliver gas to the Petronas Duyong offshore gas facility by August2002 at a rate of 100 million cubic feet per day, ramping up to a full volume of 250mmcfd by 2007. Conoco Indonesia (40 percent), Japanese firm Inpex (35 percent), andTexaco (25 percent) are partnered in the Block B production sharing contract. Conocoand its partners will spend US $2.5 billion to develop Block B further by constructingmajor production platforms; a 96-kilometer subsea pipeline; a floating production,storage, and offtake (FPSO) vessel; and a liquefied petroleum gas facility. (Note: WestNatuna Block B has another 0.5 TCF of uncommitted gas reserves available for further

exploitation in addition to the Petronas and SembCorp sales.)

Ninth LNG Train to be Built Soon?

Indonesia has advanced plans to build a ninth LNG train (train I) at the Bontang LNGplant in East Kalimantan with a request for technical bids on a Front End Engineering &Design (FEED) package. Among the bidders are KBR & JGC, Technip & RekayasaIndustri, Chiyoda and IKPT. The Engineering, Procurement, and Construction (EPC)tender is scheduled to be issued at end of 2001. The project is expected to be completedin 2004, with a designed capacity of 3.0 million metric tons per year. The Arun LNGplants output was declining even before ExxonMobils March suspension of gas

production. The new train will support Aruns existing LNG sales commitments.

Gulf Indonesia Budgets $150 Million for 2001Gulf Indonesia Resources, a 72-percent-owned subsidiary of Gulf Canada Resources, has set a capital expenditure budget of US$150 million for 2001, a jump from $100 million in 2000. Two-thirds of the 2001 budgetexpenditure will be directed at development opportunities and one-third will be directedtoward exploration and delineation activities. Of the $75 million targeted towards naturalgas, 80 percent is planned for South Sumatra gas development projects while 20 percentis earmarked for South Sumatra gas exploration and delineation activities. The $75million directed at oil will be split 50 percent for South Sumatra oil developmentactivities, 40 percent for offshore oil exploration, and 10 percent for other capital

requirements.

http://www.usembassyjakarta.org/econ/natgasapr01.html

6 July, 2009

First Cargo from Indonesias Tangguh LNG ProjectMitsubishi Corporation, INPEX CORPORATION, Nippon Oil Corporation, MITSUI & CO.,LTD., LNG JAPAN CORPORATION, Sumitomo Corporation, Sojitz Corporation and Japan Oil,Gas & Metals National Corporation, today announced that the first cargo of liquefied natural gas(LNG) has been lifted from the BP led Tangguh LNG project in Papua Barat, Indonesia. The


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departure of the first cargo marks the start-up of the Tangguh project, just over four years after itsfinal sanction by the Government of Indonesia in March 2005.The first cargo, on board the Tangguh Foja, is bound for POSCOs LNG regasification terminal

in Gwangyang in South Korea.This success is a tribute to the close co-operation throughout its development between TangguhJoint Venture Partners and the Government of Indonesia, regulators, partners, contractors andparticularly local communities in Papua.The project will now move from project development to the operations phase, and continue tofocus on safely and reliably delivering Indonesias gas resources to markets across the world fordecades to come.Tangguh, Indonesias third LNG centre after Bontang and Arun, comprises the development ofsix gas fields in the Wiriagar, Berau and Muturi production sharing contracts in the Bintuni areaof Papua Barat in eastern Indonesia. Gas produced from two normally unmanned offshoreplatforms is fed via 22- kilometre pipelines to two onshore liquefaction trains, each with aproduction capacity of 3.8 million tonnes a year of LNG. Train 1 began LNG production in mid-

June, producing the LNG for the first cargo, and Train 2 is expected to commence this quarter.Tangguh is operated by BP Indonesia, with a 37.16 per cent interest, as a contractor to theIndonesian oil and gas regulator, BPMIGAS. Other partners in the project are MI Berau B.V.(16.3 per cent), CNOOC Ltd. (13.9 per cent), Nippon Oil Exploration (Berau) Ltd. (12.23 percent), KG Berau/KG Wiriagar (10 per cent), LNG Japan Corporation (7.35 per cent) andTalisman (3.06 per cent).

Notes to editors: The Tangguh project has long term contracts in place to supply 2.6 million tonnes of LNG a

year to the Fujian terminal in China, 1.15 million tonnes a year to K-Power and POSCOin South Korea, and a flexible contract to supply up to 3.7 million tonnes a year toSempras LNG regas terminal in Baja California, Mexico.

The main engineering contractors for the Tangguh project onshore infrastructure are theKJP consortium, comprising Kellogg, Brown & Root (through its subsidiary PT Brownand Root Indonesia), JGC Corporation and PT Pertafenikki Engineering. Lead contractorfor offshore and subsea construction was Saipem.


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The Tangguh project has adopted a fully integrated approach to development and its impact

on local communities. A wide range of integrated social programmes have been

implemented, including a community based approach to security and a commitment tomaximise the employment opportunities for local people during both the construction andthe subsequent operating phases. Activities are taking place at all levels, from specificprogrammes in those villages closest to the project site to wider initiatives across theBirds Head region and throughout Papua.

The Tangguh Project has also set new standards in transparency and has made reports fromexternal panels such as TIAP and the External Performance Monitoring Panel onResettlement available to all stakeholders.

Further information:Mitsubishi Corporation Corporate Communications Dept. Tel: +81-3-3210-3917

INPEX CORPORATION Corporate Communications Unit Tel: +81-3-5572-0233Nippon Oil Corporation Public Relations Department Tel: +81-3-3502-1124MITSUI & CO., LTD. Corporate Communications Division Tel: +81-3-3285-7540LNG JAPAN CORPORATION Corporate Planning & Coordination Dept. Tel: +81-3-6229-3445Sumitomo Corporation Corporate Communications Dept. Tel: +81-3-5166-3100Sojitz Corporation Public Relations Dept. Tel: +81-3-5520-2299Japan Oil, Gas & Metals National Corporation

Public Relations Division Tel: +81-44-520-

http://www.inpex.co.jp/english/news/pdf/2009/e20090706.pdf

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