July 6 (Bloomberg) -- BP Plc is targeting buyers in Japan and South Korea for planned supplies of liquefied natural gas from its Tangguh plant in Indonesia to benefit from a shortage of regional Asian supplies.
BP may export as much as 60 percent of the LNG from its third production line at Tangguh, according to William Lin, the company’s Asia-Pacific president. It will build on existing contracts that Asian buyers have with Indonesian providers and their strategy of using multiple suppliers, he said.
“Indonesia is very strategic to a lot of markets in Asia,” Lin said in an interview June 29. “For a lot of those buyers, Japanese and Korean, diversification is very important. They don’t want to buy all of their requirements for instance from the Middle East because if something adverse happens, energy security could be at risk.”
Asia is expected to remain short of LNG through 2018 as demand in the region surges, Wood Mackenzie Ltd., an Edinburgh, U.K.-based consultant, said in a June 6 report. Gas consumption in Japan, the world’s biggest importer of the fuel, will jump 53 percent by 2017 to 127 billion cubic meters a year, the International Energy Agency said in its Medium-Term Gas Market Report last month.
Tangguh’s third line, known as a train, is projected to start production as early as 2018 after construction begins in 2014, Lin said. The facility will cost $11 billion and produce as much as 3.8 million metric tons a year of the fuel.
Tangguh has proven gas reserves of around 14.4 trillion cubic feet and the two existing LNG trains can produce at least 7.6 million tons a year, according to BP’s website. The plant shipped 250 cargoes from its first delivery in July 2009 through mid-June this year, according to a company factsheet provided during the interview.
BP has a 37 percent interest in Tangguh. Other partners include CNOOC ltd with about 14 percent and Nippon Oil Exploration (Berau) Ltd. with 12 percent.
Indonesia is seeking new LNG projects as its older facilities at Arun in Aceh province and Bontang in East Kalimantan start to run out of supply.
“With Bontang and Arun going down, buyers see Tangguh as the next big LNG center with Train 3 and possibly future trains if we can find more gas in the area,” said Lin.
BP is talking with customers about long-term supply from the third train, Lin said without giving details on the potential buyers.
The company signed a memorandum of understanding in May to supply as much as 40 percent of the production from the third Tangguh train, or 230 million standard cubic feet a day, to PT Perusahaan Listrik Negara, the state electric utility. Indonesia is trying to increase gas use by power stations and vehicles to offset declining oil output and cut the cost of fuel subsidies.
“We need some gas going to the domestic market because we know the domestic market is growing and needs gas but we also want to diversify our market exposure,” Lin said. “A 40 percent to 60 percent ratio of domestic to export balance on Train 3 is very reasonable.”
Jakarta-based Listrik Negara will receive as much as 150 million cubic feet a day from the existing trains at Tangguh starting 2014 and will get the full amount when the third line starts, according to Lin. BP plans to negotiate the contract and agree on the price in the next few months, he said.
Under the same agreement, BP will also supply as much as 4 megawatts of electricity immediately to the community around the project, Lin said. Electricity from the plant could increase to 70 megawatts and extend to other areas, he added.
“Our proposal to the Indonesian government is very much about local needs in Papua and Bintuni through power” as well as meeting the requirements of shareholders, stakeholders and partners for export to “attractive” markets in East Asia, he said.
BP is also increasing oil and gas exploration in Indonesia after picking up two deep-water blocks in Maluku last year, according to Lin. The company has committed to invest $10 billion over the next 10 years to finance development of Tangguh, a coal bed methane project, and exploration in Indonesia.
“We’re continuing to pick up more exploration blocks,” he said. “We like eastern Indonesia because that’s where we have been operating with Tangguh but we’re also looking at other areas.”
BP, through its VICO venture with Italy’s Eni SpA, is carrying out testing at its coal-bed methane project in East Kalimantan’s Sanga-Sanga and may see early production in 2014 to 2015, Lin said. The gas will be compressed into LNG at the Bontang plant, he said.
If the project works, Indonesia could be the first country that produces LNG from coal-bed methane, he said. The nation has an estimated 453 trillion cubic feet of coal-bed methane resources, the energy ministry’s Geology Agency said last year.
LNG is natural gas chilled to minus 260 degrees Fahrenheit (minus 162 degrees Celsius), putting it in a liquid state for shipping by tanker.
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