FACTBOX-Indonesia LNG plants, projects

2009-07-06 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 it
hopes will offset falling output in other ageing fields.

The first cargo from BP-led Tangguh is due to go to POSCO's LNG terminal in
Gwangyang, 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 start
operating 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 more
available to supply, particularly with the Tangguh project coming on stream.

In the past, Jakarta has sometimes failed to meet its contractual commitments to
traditional markets such as Japan, South Korea and Taiwan, often agreed more than a
decade 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 million
tonnes a year (tpy), but output has declined due to a lack of available natural gas. Vico
Indonesia, 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 17.7
million in 2008.

ARUN - Indonesia also launched LNG production at its Arun complex in Aceh province
in 1977, with 6 trains and a capacity of around 12 million tpy. Since 2000, LNG
production at Arun has fallen as natural gas supplied by Exxon Mobil declines. Arun is
expected 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 to
produce 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 right
to divert half to customers other than its own terminal in Mexico. There are also supply
contracts with South Korean firms K-Power and POSCO.

Planned projects:
KUTAI BASIN - Chevron Corp is due to decide whether to move to final design on the
Kutai Basin natural gas project off East Kalimantan by the end of 2009 and a final
investment 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 (760-1,800
metres). Chevron had said it plans an investment of about $6 billion in the fields, which
have 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 gas
to domestic users, which could provide 0.7-0.8 million tonnes of LNG a year. Some of
the gas from Kutai will also be supplied to Bontang.

MASELA - Indonesia is considering building an onshore LNG plant for natural gas
reserves from the Timor Sea, energy minister Purnomo Yusgiantoro said. Japan's Inpex
Corp, which is the operator of the Abadi field in the Masela block, had earlier proposed
building 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 gas
reserves and is expected to be on stream in 2016.

NATUNA D-ALPHA - Indonesia's state energy firm Pertamina expects the Natuna Sea
natural 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 $40
billion 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 said
its contract is valid until 2009. Pertamina does not have the technical expertise or
financing to develop the project alone and has named eight firms -- Petronas, Exxon
Mobil, 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 Mitsubishi

Corp. have agreed to build the $1.4 billion Donggi-Senoro LNG plant in Sulawesi, with a
capacity of 2 million tonnes per year. It will receive natural gas supplies from Pertamina
and Medco. The government, Pertamina and Medco are still in negotiations reviewing the
natural 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
Tangguh LNG is the third LNG hub in Indonesia. In March 2005 the Government of
Indonesia 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 centered
on 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 a
production 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 billion
with several international banks to finance the development of the LNG plant. The
external financing highlights investors' confidence in the project.
Project location and dimensions
The Project involves the tapping of six fields to extract combined proven reserves of
around 14.4 trillion cubic feet of clean gas. Two normally unmanned offshore production
platforms located in Bintuni Bay will collect gas from the reservoir, then send it through
sub-sea pipelines to an LNG processing facility on the south shore. From here, LNG will
go to energy markets using LNG tankers.

Enlarge image
d

The LNG processing plant will initially consist of two ‘trains’ (the units that purify and
liquefy gas), producing at least 7.6 million metric tons of LNG a year. Other facilities at
the site includes storage tanks, an LNG tanker loading terminal, as well as maintenance
facilities, 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. It
will 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, plant
capacity 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 huge
undertaking 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 Snapshot Original Capacity Add-On Total Working
Startup Capacity (1)
(2)
Original/ Nameplate Working Nameplate Working Capacity
Add-On (MTA) (MTA) (MTA) (MTA) 2002
(MTA) (3)
Bontang: ‘A-B’ – 2 x 2.15 2 x 2 .60 ‘C-D’ - 2 x 17.6 22.2
1977 2.15 (‘C-D’– 2 x
original/new trains: ‘E-F’- 2 x 2.3;
1 2/1983; 2.30; ‘E-F’-2 x
2 1/1989; ‘G’-2.60 2.5;
3 1/1993; ‘H’- 3.00 ‘G’-2.9,
4 1/1997; ‘H’- 3.3)
5 1/2000 Trains ‘A-B’
debottlenec
k to
3.2 each
Aceh: 3 x 1.50 3 x 1.70 3 x 1.50 # 1-3 12.8
1978 – 3 original/new trains Debottlenec
1 2/1983-4 k increases
2 1/1986 each train to
2.9
#4-6:
Debottlenec
k–
increases
each train to
3.5
Train
Closures
4/2001:
#2
mothballed
cuts 2.9;
#6
mothballed
cuts 3.50
TOTAL 35.0
2P Reserves Production (Export)
Gas Condensate Gas Condensate Major
(TCF) (4) (million BBLS) (5) (million (MBD) (7) Production
CF/day) (6) Fields (8)
National: 134.1 620 6,804 108 Bontang:
Bontang: 24..8 345 2,841 78 Sanga Sanga,
Arun: 5.6 30 694; 12 Offshore
(3,381) (54) Mahakam,
East
Kalimantan
PSCs (includes
Badak, Nilam,
Tunu,
Tambora, Sisi,
Nubi, NW
Peciko,
Semanlu gas
fields and
associated gas
from Handil,
Attaka,
Bekapai);
Arun: North
Sumatra 'B'
Block (single,
giant gas field),
NSO Block –
(A, J1, J2 gas
fields)
Initial Cost Roughly $1.2-1.5 billion each for
Bontang and Aceh on two trains
and three trains, respectively.
Further LNG investment since
1980 more than $10 billion.
Ownership Upstream Bontang supplied by Offshore
Mahakam PSC (50% Total, 50%
Inpex), Sanga Sanga PSC
(23.13% Vico, 26.25% ENI (ex-
Lasmo), 26.25% BP, 20% CPC
Taiwan, 4.37% Universe Gas and
 Oil (Osaka Gas) and East
Kalimantan PSC (100% Unocal).
Aceh 100% ExxonMobil North
Sumatra PSC (of which
Pertamina 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 and
15% 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 power
plant 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 meet
rising domestic demand for power and to reduce consumption of crude oil as its reserves
dwindle. The new LNG terminal would supply state electricity firm PT Perusahaan
Listrik Negara (PLN).

As the world’s number three LNG exporter after Qatar and Malaysia, it has in the past
failed to meet its contractual commitments to traditional markets such as Japan, South
Korea and Taiwan, often agreed more than a decade ago, as it seeks to switch more
supply to the domestic market.

‘PLN badly needs more gas supply for its power plant in North Sumatra. We will
anticipate by building an LNG floating receiving terminal there,’ Purnomo Yusgiantoro
told reporters.
Yusgiantoro said he has asked state gas firm, PT Perusahaan Gas Negara Tbk (PGN), to
build the terminal.

PGN’s president director Hendi Prio Santoso said the terminal is expected to have a
capacity of around 150 million cubic feet of gas per day. He did not give a figure for the
investment required.

‘Building floating LNG receiving terminal is quicker compared with gas pipeline. We
will 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 be
delayed by funding woes and differences over plant specifications, a senior official of
state power company PT Perusahaan Listrik Negara (PLN) said today.

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

A PGN official has been previously quoted by the Bisnis Indonesia daily as saying the
alternatives were to build a mini terminal with an annual capacity of 1.5 million tonnes or
a 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, is
boosting use of energy sources such as natural gas to reduce oil use because of high
prices and dwindling domestic supply.

"PLN want the consortium to stick with the original plan to build the LNG terminal on
land in West Java," Reuters quoted Fahmi Mochtar, the company's president director, as
telling 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 domestic
LNG 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 the
domestic market. Indonesia is counting on BP-led Tangguh to help offset declining
production 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 GMT
http://www.upstreamonline.com/live/article168395.ece

ENERGY NEWS

INDONESIA: TROUBLES IN INDONESIA'S LNG INDUSTRY

Summary:
 Declining production and the GOI’s January 2005 decision to defer and cancel 51 liquefied
natural gas (LNG) cargos this year are the most visible signs of trouble in Indonesia’s LNG

industry.

 LNG producers and buyers are concerned that poor policy and weak government
management threaten Indonesia’s competitiveness.

 Protracted negotiations between the GOI and a BP consortium to develop a third LNG center
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 revise
or clarify key regulations to improve the health of the sector.

Download this document in PDF file

Background

Indonesia began LNG production in 1977 and is the world’s 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 1990’s, oil and gas revenues, of

which LNG represents about half, comprised nearly 27 percent of the country’s 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 Indonesia’s $69.7 billion in total exports.

Indonesia’s 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

Offshore Oil Corporation’s (CNOOC) planned Fujian terminal in China, U.S. Sempra Energy’s

proposed Baja California terminal, and South Korea’s 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

Revenues World Market

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

Aceh’s 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 Arun’s 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 Arun’s 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

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

Bontang’s 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: Bontang’s 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 Bontang’s 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. Arun’s 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 GOI’s 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.

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 GOI’s support to the fertilizer industry. One reason is the

importance the government places on ensuring sufficient fertilizer for the country’s 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 Indonesia’s LNG future development is weak government management

over the sector. Prior to 2002, Pertamina was the GOI’s 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 Pertamina’s existing financial and contractual LNG obligations.

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

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

Indonesia’s 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 government’s negotiator and seller of record for Japan’s LNG

contracts.

The Tangguh project is a good example of how these problems concern buyers and delay
Indonesia’s future LNG development. Despite the fact that Tangguh straddles a large 14 TCF gas
resource during a period of growing demand, it took over two years to find enough LNG buyers to
make the project viable. It took the GOI over three years to issue implementing regulations that
would permit BP to seek Tangguh contract area extensions covering the lifespan of its LNG
commitments. For delays ensured when the BP consortium, which is also the GOI’s seller of
record for Tangguh LNG, asked the GOI sign a shared liability agreement to protect the project
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 the
horizon. Unocal’s Gendalo deepwater gas project in offshore Kalimantan could come online in
2010, but this would only maintain Bontang’s LNG production. Pertamina occupies potentially
large gas tracts suitable for LNG development, such as Donggi in South Sulawesi, but lacks the
money 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 market
obligations for natural gas. As a result, outside of Tangguh’s 6.3 mtpa commitments, Indonesia’s
contracted 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 15.63
S.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

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

 Strengthen LNG Governance. Establish clear lines of authority

regarding LNG assets and management. Negotiate future sales contracts with one
voice and with regard to the effect on existing contracts.
 Remove Constraints on LNG Growth. Revise or clarify laws and regulations
that hurt the economics of LNG development and inhibit new investment, such as
domestic market obligations and proposed taxes during exploration.
  Rationalize Policymaking. Find a balance between supporting
the domestic fertilizer industry and meeting export commitments
that is based on economic value and which restores Indonesia’s
reputation 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

Significance The government's decision will significantly shift rates-of-return on the

Donggi terminal and is therefore likely to undermine Mitsubishi's
interest in the project. The Japanese company entered into the project
with the understanding that 100% of LNG output would be exported.

Implications While project partner Medco Energi is still interested in the project
(perhaps due to the recently negotiated rises in feed gas prices from
fields in which it has a stake) the government's decision could cause
Mitsubishi to reconsider its participation in the project, perhaps leading
the company to reduce its stake or in the worst case scenario withdraw
completely.

Outlook The government's decision will damage investor confidence in

Indonesia's LNG sector by underlining the potential financial risks of
committing capital to new projects. At the same time gas re-allocation
promises to reduce gas deficits at many of Indonesia's fertiliser plants,
helping the government's broader aim of expanding gas usage to reduce
Indonesia's oil import dependence, and increasing utilization of cleaner
forms of energy.

Beginning of the End for Donggi?

The Donggi LNG terminal in Indonesia has run into trouble following the announcement
by vice-president Yusuf Kalla that natural gas output from the Senoro and Matindok
fields 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 the Jakarta Post newspaper.
Kalla also emphasised that the decision was final and had been taken collectively by the
government 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 two
fields should be used both to supply the LNG plant for exports and for the domestic
market. Pertamina said the scheme would work if at least 250 mmcf/d of gas was sold
from the Senoro field and 85 mmcf/d from the Matindok field at a price of
US$6.16/mmBtu, while 70 mmcf/d of gas could be distributed to domestic petrochemical
companies at a price of US$3.17/mmBtu. Partner Medco E&P (who owns a 20% stake in
the terminal project) also said this was a better scenario, but that the final decision was up
to 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 terminal
project, casting doubt over its economic viability. The government's decision to push up
the price of gas from the Senoro-Donggi fields last month has already reduced the
potential rate of return on investments for the terminal, undermining project
economics (see Indonesia: 28 May 2009: Indonesian Government Pushes Gas Price
Hike for Sulawesi LNG Terminal). In November 2008 there were also doubts over
whether 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 the fields can meet both local demand and LNG exports, as is stipulated in
Pertamina and Medco's plan (see Indonesia: 6 November 2008: Gas Reserve Study
Puts Feasibility of Indonesia’s Donggi LNG Terminal in Doubt). However, the
problem of gas allocation is perhaps the most serious affecting the project so far. In a
warning shot to the project partners, Kalla announced earlier this month that output from
the Donggi-Senoro fields would be prioritised to the domestic market. Now the
government's position has hardened. According to Platts, Kalla is seeking 1 – 2 million
t/y of LNG from the terminal to feed a proposed fertiliser factory in south-east Sulawesi
while the rest would be sold to local industries in Java, eastern Indonesia, and other
provinces. Only after these 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 before meeting domestic demand. This warning appears to be directed at
Mitsubishi given that it had signed heads of agreements (HoA) for export of LNG to
Japanese utility firms Chubu Electric and Kansai Electric earlier this year.

Uncertainties and inconsistencies remain, however, over the government's gas allocation
programme. In particular, over whether natural gas or LNG would be allocated to the
domestic 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 significant
investments in LNG re-gasification facilities in Indonesia.

Outlook and Implications

What impact is the government's decision likely to have on the Donggi-Senoro LNG
project? It is likely to quite seriously undermine Mitsubishi's interest in pursuing the
project as the potential revenues for supplying the domestic market with LNG are
considerably lower than for the export. Mitsubishi entered into the project with the
understanding that 100% of the terminal's output was to be exported, so the government's
announcement 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 little
surplus LNG would be available for export if the government allocates between 1 and 2
million 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 to
the government to adopt a compromise solution to supply both the domestic and export
market. However, Pertamina has stated that supplying both markets will cause potential
delays to the project's original start-up date of 2012 (possibly due to the need for further
exploration 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 gas
allocation plans was 8 June and the government has still not softened its position. If the
government'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, "it
will 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 the
project 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 dropped
completely or not will depend first on whether the government is prepared to accept a
compromise supply allocation proposal, and second on the projected cost of re-
gasification facilities, which will need to be constructed if domestic consumers are to be
supplied with LNG as opposed to natural gas. However, unlike Mitsubishi, both
Pertamina 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 into
Indonesia's LNG sector. The government's abrupt changing of allocation terms with
significant 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 revenue
from the project, previously estimated at US$5.7 billion. At the same time the
government's decision will help reduce chronic gas shortages in Indonesia that force
many fertiliser plants to function below full capacity. This will have positive knock-on
effects on the agricultural sector and for the government's broader aim of expanding gas
usage to reduce Indonesia's oil import dependence and increase utilisation of cleaner
forms of energy.
http://www.globalinsight.com/SDA/SDADetail17101.htm
Liquefied Natural Gas
Media reports suggest that Indonesia was surpassed by Qatar in 2006 as the single largest
exporter of LNG.
Indonesia is a leading LNG exporter. Indonesia was the world’s largest exporter of LNG
in 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, East
Kalimantan and the Arun plant in North Sumatra. The Bontang LNG terminal was
Indonesia’s 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 to
produce 21.6 MMt/y (1.1 Tcf/y). However, production has stood below full capacity in
recent years, with 2004 output estimated at 19.6 MMt (955 Bcf) of LNG. The Bontang
terminal is operated by PT Badak NGL Company, 55 percent owned by PT Pertamina, 20
percent by Vico (a BP-Eni joint venture), 10 percent by Total, and 15 percent by the
Japan Indonesia LNG Company (JILCO). Recently, the Bontang plant has faced
underproduction for a variety of reasons, which forced the Indonesian government to
divert some natural gas supplies to domestic fertilizer companies. In 2005, Bontang LNG
supply contracts were renegotiated so that more of the project’s output could supply
domestic 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 percent
by JILCO. Arun is a six-train facility with a total capacity to produce more than 10
MMt/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 the
company estimates that it has depleted 90 percent of the recoverable reserves. This
shortfall also contributed to the government’s effort to redirect some natural gas
production designated for export to domestic users. In 2005, this forced the Indonesian
government to turn to spot LNG markets to meet its contractual obligations to foreign
buyers.
Tangguh LNG Project
One project that holds promise for Indonesia's future in worldwide LNG markets is the
BP-led Tangguh project in Papua province. The Tangguh fields contain 14.4 Tcf of
proven 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 China
National Offshore Oil Corporation (CNOOC, 16.96 percent), Mitsubishi (16.3 percent),
Nippon Oil (12.23 percent), KG (10 percent), and LNG Japan (7.35 percent). The first
LNG 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 LNG facility has already secured four long-term LNG sales contracts, including:
the Fujian LNG project in China, K-Power in Korea, POSCO in Korea, and Sempra
Energy in Mexico.
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, South
Lhoksukon, and Pase gas fields in north Aceh on March 9 as a result of a deteriorating
security situation. The resulting loss of natural gas feedstock required Pertamina to shift
LNG deliveries from the Arun plant to Bontang, Indonesia’s second LNG plant in East
Kalimantan. Earlier, Indonesia established its status as an exporter of piped gas with a
January 15 ceremony marking first deliveries of natural gas to Singapore from its West
Natuna fields. Pertamina delivered the gas in partnership with a consortium comprised of
Canadian-based Gulf Indonesia, U.S.-based Conoco, and U.K.-based Premier. Indonesia
further cemented its status as a piped gas exporter with a February 12 contract signing
between Pertamina and Singapore’s Sembcorp and a March 29 signing between
Pertamina and Malaysian state-owned petroleum company Petronas. Even with these
deals, Conoco has a further 500 billion cubic feet of natural gas reserves available from
its West Natuna Block B. Indonesia has taken further steps to construct a ninth LNG train
at Bontang. Gulf Indonesia has increased its capital expenditure budget for 2001 by 50
percent to US $150 million. End summary.

ExxonMobil Stops Aceh Onshore Production

ExxonMobil Indonesia suspended natural gas production on March 9 from its onshore
Arun, South Lhoksukon, and Pase fields in north Aceh due to deteriorating security.
Company representatives explained that, while clashes between separatist Free Aceh
Movement (GAM) forces and the Indonesian military contributed to an increasingly
tenuous situation over the last two years, attacks and harassment were increasingly
directed to ExxonMobil facilities and personnel from January 2001. ExxonMobil is
engaged in discussions with Pertamina regarding resumption of its operations.

Facilities which depended on ExxonMobil’s natural gas and condensate supplies –the
Arun LNG plant, fertilizer plants PT Pupuk Iskandar Muda and PT ASEAN Fertilizer,
and the Humpus Aromatics plant -- were also forced drastically to reduce output or
suspend operations. ExxonMobil continues to produce 300 million standard cubic feet of
gas per day from its North Sumatra Offshore (NSO) field, sufficient to maintain minimal
safety and electrical systems at its own operations and the associated facilities. With
Arun’s production reduced to a mere trickle, Pertamina said, of the ten cargoes committed
from Arun in March, eight were delivered from inventories and the Bontang LNG plant,
Indonesia’s second plant in East Kalimantan. Malaysia supplied the remaining two
cargoes.

Pertamina Delivers First Gas to Singapore

Pertamina and Singapore’s SembCorp Gas Pte Ltd celebrated the first delivery of natural
gas on January 15, exactly one year after signing a gas sales agreement (GSA). The GSA
provides for the supply of 325 million standard cubic feet per day (mmscfd) from
Indonesia’s West Natuna fields to Jurong Island and Tuas, Singapore for a period of 22
years. SembGas has a take-or-pay requirement while Pertamina is obliged to invest in
specified facilities to deliver a minimum of 12 years of gas whether or not it is
economical 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 three
production sharing contractors (PSC’s), acting as the West Natuna Group (WNG),
partnered with Pertamina to form the West Natuna Gas Consortium (WNGC). WNGC
invested 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 longest
underwater pipelines in the world. The pipeline has a current capacity of 700 million
standard 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 which
Pertamina committed to supply natural gas to Gas Supply Pte Ltd., a Singapore Power
subsidiary, via a 500-kilometer pipeline that must be operational in 30 months. Under the
terms of the 20-year contract, Pertamina will start selling gas to Singapore in mid-2003 at
150 million cubic feet per day (mmcfd) stepping up to 250 mmcfd by 2009. At current
prices, the project will generate US $9 billion dollars in gas sales revenue over its 20-year
life, 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 Energy
Corporation; and the Corridor and South Jambi B Blocks, both operated by Gulf
Resources. Talisman is partnered with Gulf in the Corridor Block, while Amerada Hess
and 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 Malaysian
counterpart, state oil and gas company Petronas President Mohammad Hassan Marican,
to deliver natural gas from the West Natuna area to Malaysia. Under the deal, Pertamina
will 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 and
natural gas liquids will bring another estimated $4 billion.
A subsea pipeline will deliver gas to the Petronas Duyong offshore gas facility by August
2002 at a rate of 100 million cubic feet per day, ramping up to a full volume of 250
mmcfd by 2007. Conoco Indonesia (40 percent), Japanese firm Inpex (35 percent), and
Texaco (25 percent) are partnered in the Block B production sharing contract. Conoco
and its partners will spend US $2.5 billion to develop Block B further by constructing
major production platforms; a 96-kilometer subsea pipeline; a floating production,
storage, and offtake (FPSO) vessel; and a liquefied petroleum gas facility. (Note: West
Natuna 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 LNG
plant in East Kalimantan with a request for technical bids on a Front End Engineering &
Design (FEED) package. Among the bidders are KBR & JGC, Technip & Rekayasa
Industri, 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 completed
in 2004, with a designed capacity of 3.0 million metric tons per year. The Arun LNG
plant’s output was declining even before ExxonMobil’s March suspension of gas
production. The new train will support Arun’s 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 budget
expenditure will be directed at development opportunities and one-third will be directed
toward exploration and delineation activities. Of the $75 million targeted towards natural
gas, 80 percent is planned for South Sumatra gas development projects while 20 percent
is earmarked for South Sumatra gas exploration and delineation activities. The $75
million directed at oil will be split 50 percent for South Sumatra oil development
activities, 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 Indonesia’s Tangguh LNG Project
Mitsubishi 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
departure of the first cargo marks the start-up of the Tangguh project, just over four years after its
final sanction by the Government of Indonesia in March 2005.
The first cargo, on board the Tangguh Foja, is bound for POSCO’s LNG regasification terminal in
Gwangyang in South Korea.
This success is a tribute to the close co-operation throughout its development between Tangguh
Joint Venture Partners and the Government of Indonesia, regulators, partners, contractors and
particularly local communities in Papua.
The project will now move from project development to the operations phase, and continue to
focus on safely and reliably delivering Indonesia’s gas resources to markets across the world for
decades to come.
Tangguh, Indonesia’s third LNG centre after Bontang and Arun, comprises the development of
six gas fields in the Wiriagar, Berau and Muturi production sharing contracts in the Bintuni area
of Papua Barat in eastern Indonesia. Gas produced from two normally unmanned offshore
platforms is fed via 22- kilometre pipelines to two onshore liquefaction trains, each with a
production 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 the
Indonesian 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 per
cent), KG Berau/KG Wiriagar (10 per cent), LNG Japan Corporation (7.35 per cent) and Talisman
(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 POSCO
in South Korea, and a flexible contract to supply up to 3.7 million tonnes a year to
Sempra’s LNG regas terminal in Baja California, Mexico.

• The main engineering contractors for the Tangguh project onshore infrastructure are the KJP
consortium, comprising Kellogg, Brown & Root (through its subsidiary PT Brown and
Root Indonesia), JGC Corporation and PT Pertafenikki Engineering. Lead contractor for
offshore and subsea construction was Saipem.
 • 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 to
maximise the employment opportunities for local people during both the construction and
the subsequent operating phases. Activities are taking place at all levels, from specific
programmes in those villages closest to the project site to wider initiatives across the
Bird’s Head region and throughout Papua.

• The Tangguh Project has also set new standards in transparency and has made reports from
external panels such as TIAP and the External Performance Monitoring Panel on
Resettlement available to all stakeholders.

Further information:
Mitsubishi Corporation Corporate Communications Dept. Tel: +81-3-3210-3917
INPEX CORPORATION Corporate Communications Unit Tel: +81-3-5572-0233
Nippon Oil Corporation Public Relations Department Tel: +81-3-3502-1124
MITSUI & CO., LTD. Corporate Communications Division Tel: +81-3-3285-7540
LNG JAPAN CORPORATION Corporate Planning & Coordination Dept. Tel: +81-3-6229-3445
Sumitomo Corporation Corporate Communications Dept. Tel: +81-3-5166-3100
Sojitz Corporation Public Relations Dept. Tel: +81-3-5520-2299
Japan Oil, Gas & Metals National Corporation

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

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