Tangguh LNG pressure builds over Sempra offtake

Friday, 15 June 2007

The Indonesian authorities have held talks on the issue and have agreed in principle to halve the Sempra allocation when the Tangguh project comes on stream late next year.

Sempra, based in San Diego, is currently developing an LNG reception terminal at Costa Azul in Mexico's Baja California province to supply Mexico and the US West Coast with gas from Indonesia and from the Gorgon venture in Australia.

Sempra signed an agreement almost three years ago with BP and its Tangguh LNG partners for the supply of 3.7 million tonnes per annum of LNG. While BP is the project leader,  the Indonsian govenment has the final say over foreign sales contracts.

The US company would also be compensated for any of its offtake diveted by BP and the shareholoders to other customers, according to reports in Indonesia.

Indonesian Energy Minister Purnomo Yusgiantoro has said, however, that the government was investigating the possibility of diverting 50 percent of Sempra's supply, or about 1.85 MTPA, to the Asian market at higher prices.

While a move to divert half the Sempra offtake to countries such as Japan and South Korea would secure higher prices, any sales to local Indonesian power companies such as PLN would be at subsized prices, the Indonesian press reported.

The Tangguh LNG plant, located in Papua, has proven reserves of more than 14 trillion cubic feet and is in the final phase of construction with more than 80 percent of the project completed under a $1.8-billion contract awarded to JGC Corp. of Japan and KBR of the US.

The first two Trains are expected to commence initial production by the last quarter of 2008 and will have output capacity of up to 7.6 MTPA. The Tangguh site is capable of supporting up to eight more LNG Trains, according to BP.

Buyers of the Tangguh diverted offtake would have to pay a premium of at least $1 per million British thermal units over the average term price of the Sempra contract said by Indonesian officials to be $5.94 per MMBtu.

Other contracted Tangguh LNG customers are the Fujian LNG project in China, and South Korea's K-Power and Pohang Iron and Steel Co. (POSCO), the South Korean steel producer.