Dec. 5 (Bloomberg) -- Indonesia, once the world’s biggest seller of liquefied natural gas, signed its first import deal in a 20-year contract to take shipments from Cheniere Energy Inc.’s proposed Corpus Christi project in Texas.
PT Pertamina, the state-owned oil and gas producer, will buy 800,000 metric tons a year of the fuel starting 2018 for the domestic market, the company said in an e-mailed statement today. The LNG will be delivered to terminals in Arun, on Sumatra island, and in central Java.
“This agreement confirms Pertamina’s commitment in ensuring LNG supplies that are crucial for continuity of the company’s gas and LNG infrastructure projects,” said Hari Karyuliarto, Pertamina’s gas director in Jakarta.
Indonesia exported more LNG than any country for about three decades until 2006 when it was overtaken by Qatar. Its domestic gas consumption is forecast to increase 3.9 percent to 7.2 billion cubic feet a day by 2025, driven by demand from power-generation and industrial users in Java and Sumatra, Pertamina said. The two islands are the nation’s most populated.
The LNG will be sold on a free-on-board basis using a contract formula linked to Henry Hub, the benchmark price for the U.S. market, according to Cheniere.
“Price is the reason Pertamina has locked in this supply from the U.S., otherwise they’d have bought it from a supply source closer to home,” said Tony Regan, a Singapore-based energy consultant at Tri-Zen International Inc. “The Indonesian government is keen to bring domestic gas prices up to international levels so the country can bring in LNG.”
The imported LNG will probably be used in Indonesia’s power sector, where utility companies such as PT Perusahaan Listrik Negara, the state-owned electricity supplier, are paying domestic gas prices of as much as $12 per million British thermal units, according to Regan.
Spot LNG for delivery over the next four to eight weeks is at $19 per million Btu, New York-based Energy Intelligence Group said on the website of its World Gas Intelligence publication yesterday. Cheniere estimates the cost to deliver U.S. gas to Asia at about $11.10 per million Btu, based on Henry Hub prices at $4 and combined liquefaction and shipping costs of $6.50, according to an October presentation on its website.
Gas futures for January were at $3.958 per million Btu on the New York Mercantile Exchange today.
“There’s always competition with coal in the power sector but the government is pushing for more gas-fired power, so this will support the domestic price,” Regan said.
Cheniere has yet to make a final investment decision on the Corpus Christi project and may do so next year, according to Nicolas Zanen, its vice president for trading. The Houston-based company expects the U.S. Federal Energy Regulatory Commission to approve the facility by mid-2014, he said in September. It’s designed for as many as three liquefaction trains with a combined capacity of 13.5 million tons a year.
To contact the reporter on this story: Chou Hui Hong in Singapore at firstname.lastname@example.org
To contact the editor responsible for this story: Pratish Narayanan at email@example.com