Posted by: mel | February 11, 2009

China Demands Stake in Indonesia’s Natuna Gas Block -Official

JAKARTA February 10, 2009 (Dow Jones)– China is demanding a stake in Indonesia’s offshore Natuna D-Alpha natural gas block as part of the conditions for renegotiating the price it will pay for gas from the Tangguh plant, an Indonesian official said Tuesday.

It’s unclear whether Indonesia will accept China’s proposal, said the official, who declined to be named.

The government last year unilaterally handed over the rights to develop the block to state-owned PT Pertamina from Exxon Mobil Corp. (XOM) after the government and Exxon failed to reach an agreement on a new revenue split deal.

Pertamina is seeking several partners to help it develop the block, which has 46 trillion cubic feet of gas, making it the biggest gas reserve in Asia. The reserve, however, has high C02 content, which requires a big investment and highly sophisticated technology.

The Indonesian government has been seeking to renegotiate the price of the 2.6 million metric tons a year of LNG it will ship to China’s Fujian LNG receiving terminal for 25 years from this year. The gas will be supplied by an LNG plant being developed by a consortium led by BP PLC (BP) in Tangguh, West Papua.

Under a contract signed in 2002, the price of LNG was pegged at $2.40 per million British thermal units, regardless of any increase in crude oil prices.

Although China agreed to an increase in the price to $3.80/MMBTU in recent years, Indonesia again sought a price increase amid skyrocketing global oil prices before they started to tumble.

According to a government document recently viewed by Dow Jones Newswires, production of LNG from the first Tangguh plant is expected to begin April 17, while the second plant is expected to start producing LNGMay 17.

But it remains unclear whether LNG shipments to China will go ahead if the two parties haven’t completed the price talks.

-By Deden Sudrajat, contributing to Dow Jones Newswires; 62-21 39831277; I-Made.Sentana@dowjones.com

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