Supply squeeze forces Jakarta to cut gas sale obligations
Shawn Donnan from Jakarta
In an attempt to weather an energy crunch, Indonesia said in the second week of this month it had renegotiated contracts with Asian buyers of liquefied natural gas to cut obligations from the country's biggest gas project by almost 10 per cent next year.
The step by Indonesia, the world's largest exporter of LNG, is the latest indication of a supply shortage that officials at state oil company Pertamina say could continue for up to two years as Jakarta waits for new gas projects to come online. It also illustrates the conflict between Indonesia's soaring domestic energy demand and its long-term obligations to international buyers at a time when it is struggling to attract fresh investment in its petroleum sector.
Ari Sumarno, Pertamina's marketing director, said that buyers from Japan, South Korea and Taiwan had agreed that in 2006 they would take 36 fewer shipments of LNG than originally planned from the Bontang project in Borneo. That would see the project's obligations of 376 cargoes next year fall by almost 10 per cent.
Mr Sumarno said the reduction was needed because of declining supply from associated gas fields and because "in the future, we will focus on the domestic market".
Jakarta, he said, also was in negotiations to cut five more cargoes next year and a further nine from the Arun gas project in Aceh. Bontang relies on gas supplied from fields operated by France's Total and Chevron.
The Arun project is dependent on gas supplied by ExxonMobil's ageing fields nearby, where production has been declining more quickly than anticipated in recent years.
In addition to the decline at Arun, delays have plagued the BP-led Tangguh LNG project in recent years. The result has been a struggle by Indonesia to meet its obligations for LNG, leading it to buy spot cargoes in the market.
But with spot prices soaring, that has become an untenable solution for a country that, although it is Opec's only Asian member, has become a net importer of crude oil in the past year.
"It's a catch-22 for them," said Christa Janjic, regional economist for UBS. "They can either buy [LNG] cargoes on the spot market or renegotiate their long-term contracts. Either way they look bad."
Part of the problem is increasing domestic demand and political pressure from nationalists to supply LNG to local fertiliser plants and other domestic consumers rather than to international buyers.
In what he said was a "new strategy", Aburizal Bakrie, Indonesia's chief economic minister, in July said Jakarta would use more natural gas "for our own consumption" rather than "exporting it cheaply to other countries".
Officials at Pertamina blame Indonesia's energy woes on soaring crude prices and the subsequent rising demand for LNG as an alternative to oil.
"For the next one to two years, our supply will keep declining. That is why it will be difficult for us to meet our commitment to the buyers," Abadi Purnomo, a Pertamina. spokesman, said. "In the future, there are always opportunities. But they really depend on whether we find new LNG reserves [and] of course it will take time to develop new gas reserves."
Under syndication arrangement with FE