China National Offshore Company (CNOOC Ltd), China’s largest offshore oil and gas producer, will increase the price it pays for gas from BP’s Tannguh project in Indonesia, the head of Indonesia’s energy regulator said on Friday.
The existing 25-year supply deal, under which CNOOC ships around 2.6 million tons of liquefied natural gas (LNG) annually from Indonesia’s West Papua province to China’s second LNG terminal in Fujian, was signed in September 2002.
Under this agreement, the gas price was linked to oil prices and capped at $25 per barrel, and came to $2.40 per million British thermal units (mmbtu). This was increased in 2006 but remained capped at an oil price of $38 per barrel and came to around $3.35 per mmbtu.
“The president of CNOOC told the Energy and Mineral Resources Minister directly that they were ready to increase the price,” upstream oil and gas regulator SKKMigas chief Rudi Rubiandini said in a press release, referring to a meeting between Indonesia’s energy minister Jero Wacik and CNOOC chairman Wang Yilin in Jakarta on Friday.
During the meeting the energy minister told CNOOC that its gas contract was no longer at an acceptable market price, energy ministry spokesman Susyanto said in a separate statement.
In contrast to CNOOC, Indonesia sells gas to Japan and South Korea for more than $16 per mmbtu and to domestic buyers for $10 per mmbtu.
“If it’s above $7 or $8 that would be pretty good compared to now,” SKKMigas spokesman Elan Biantoro told Reuters adding that the government was targeting a revised gas sale price above $10 per mmbtu.
Along with BP, other Tangguh contract partners are MI Berau B.V. (16.30 percent), CNOOC Ltd. (13.90 percent), Nippon Oil Exploration (Berau), Ltd. (12.23 percent), KG Berau/KG Wiriagar (10.00 percent), LNG Japan Corporation (7.35 percent), and Talisman Energy Inc (3.06 percent).
The Tangguh LNG project is Indonesia’s third LNG hub and produces around 7.6 million tons of gas each year, with plans in place to add another 3.8 million tons of production by 2019, at least 40 percent of which has been set aside for domestic use.
LNG is a super-cooled form of natural gas that can be shipped long distances without the need for a pipeline. Demand for it is strong in Asian markets, where it fetches higher prices.