Petronas renegotiates with Indonesia on Natuna gas price

source: Jakarta Post

Malaysia’s oil and gas producer Petronas has agreed to renegotiate a deal for the purchase of gas output from a block located in the Natuna Sea, following pressure from Indonesian lawmakers.

The lawmakers said the deal, signed in 2002 between Petronas and block operator ConnocoPhillips under the consent of the Indoensian government, was based on a pricing mechanism that was no longer applicable and which could inflict losses on Indonesia.

Under the contract, ConocoPhillips was to export natural gas from the block to the Petronas’s Duyong gas complex for 20 years. The export began in 2002, with a first year’s delivery of 38.5 billion British thermal units per day (bbtud). The annual volume rose to 209 bbtud by last year.

The price of gas was set at a fixed rate of US$2.80 per million British thermal units (mmbtu). The average domestic price of gas is currently around $5 per mmbtu.

“Last month, Petronas agreed to a revision of the price of gas supplied to the Duyong complex,” BPMigas planning deputy Achmad Luthfi said last week.

Negotiations are currently underway between the government and Petronas for a new pricing plan, he said.

Luthfi said the government may also offer a “sweetener” for Petronas in the negotiation. “The negotiations with Petronas have been tough. In the end, we may give some trade-offs that will benefit Petronas’ upstream operations in Indonesia,” Luthfi said.

The concern over the disparity in gas prices tied to gas exports to Petronas was first raised in a hearing at the House of Representatives by lawmaker Wahyudin Munawir. Based on the existing pricing mechanism, the government had suffered losses of around Rp 4 trillion (US$412 million) between 2002 and 2008, Wahyudin said. This figure rose to Rp 12 trillion if the average price of natural gas in the international market was used as a benchmark.

Eddy Purwanto, the former deputy chairman for operations at upstream oil and gas regulator BPMigas, said that the deal with Petronas in 2002 was based on a pricing mechanism that compared the price of gas and the price of high-sulfur fuel oil (HSFO).

“The HSFO price *in 2002* was not very good. Consequently the price of natural gas in the deal with Petronas was only around $2.80 per mmbtu,” Eddy said.

Oil and gas has long been the backbone of Indonesia’s economy, contributing to about 30 percent of state revenue.

~ by abuaina on September 27, 2009.