2 landmark Indonesian LNG supply deals in June

Edi Saputra's picture
Edi Saputra, Senior Analyst, Wood Mackenzie
Comments: 0

In the recent Gastalk webinar Susan Sakmar, Author and visiting Law Professor at The University of Houston Law Centre was joined by Edi Saputra, Senior Expert Gas & Power for Wood Mackenzie to focus on and discuss recent gas and LNG news in Southeast Asia, in particular, Indonesia.

Being one of the key natural gas producers, Indonesia accounts for 40% of Southeast Asia’s LNG production as well being the fourth-largest LNG exporter in the world; the country is key in driving future global growth to the industry.

Discussing the recent headline BP inks Indonesia LNG supply deal(LNG World News) Susan asked Mr Saputra to share some insights into this deal and why it is so significant.

“This is actually a domestic LNG sale. BP operates the Tangguh LNG plant in West Papua, Indonesia. The volume of the deal is 1 mmtpa for 15 years, this is on top of the 2.8 mmtpa contract they’ve signed last year. It will be used to supply a 1.6 GW new IPP project in West Java which will provide power to PLN under a 20--year PPA. Indonesia is developing 14 GW of new gas power plants across the country as part of the 35 GW programme, and it needs a lot of LNG to supply the projects

It is also significant because it shows that the traditional contracting model – long term contractual commitment with TOP requirements still holds in Indonesia, and in some other emerging Asian countries, where demand is robust and the market is still relatively integrated with national energy or utility companies like PLN acting as the single buyer. They are comfortable to sign long term contracts, knowing they have their countries’ demand behind them. Something that we don’t see in liberalized markets where demand is less certain and competition is quite intense.”

Moving on to another pinnacle industry news storyWoodside signs LNG deal with Pertamina(Oil & Gas Journal), Mr Saputra shared his knowledge on the subject and explained why this is so noteworthy.

“This story seems just like the previous deal, but they are different. This is an LNG import deal to bring in volumes from the international market to Indonesia. The volumes will come from Woodside, most likely from Pluto in the north-western part of Australia, at roughly 0.6-1.1 mmtpa for 20 years.

The buyer is Pertamina, Indonesia’s NOC, which acts as the gas aggregator. I think it is buying for an energy security reason, not for a trading purpose, although at some point it may involve trading to mitigate any potential excess. The Indonesian government views that the gas demand will grow strongly to the extent that domestic production alone won’t suffice. They gave mandates to Pertamina to secure volumes from outside. Pertamina has been busy signing some LNG imports deals. This is actually the 3rd GSPA with international suppliers, the first one was signed with Cheniere from Corpus Christi, and then with Total. It has also signed HoAs with Shell and more recently ExxonMobil, which was signed during Mike Pence’s visit to Jakarta last April.

For Woodside, Pertamina offers a long-term contract opportunity. Woodside will have spare capacity as some of the existing contracts with Japan and Korea will expire soon. Looking at the current situation in Japan, with demand uncertainty and ongoing liberalisation, it will be difficult to see them signing long term commitments. Another thing, for both parties, the close proximity between Indonesia and Australia, the low shipping cost, is a key advantage.”

If you missed the webinar and would like to hear the other stories discussed by Edi Saputra and Susan Sakmar, please register to receive the full recording here.

Wood Mackenzie’s Edi Saputra will be a key speaker at the upcoming Gas Indonesia Summit & Exhibition on “Advancing Indonesia’s Gas and LNG industry” that will take place on 12-14th July in Jakarta Convention Center. To see the full conference programme and to discover more about the event, click here.

Image courtesy of Wood Mackenzie