Indonesia to halve LNG to Japan Observers say move a sign of tough times ahead in energy sector
The Yomiuri Shimbun
Indonesia has notified Japanese companies that it intends to halve exports of liquefied natural gas to Japan by as early as 2010, sources said Thursday.
The two sides have already entered into negotiations on the reduction plan, which will be implemented when current long-term export contracts expire, the sources said.
With the soaring price of crude oil, and growing concerns over environmental problems, countries including China, South Korea and the United States have started importing LNG. This increase in demand from other nations, and subsequent reduction in LNG imports from Indonesia, is likely to have a significant impact on Japan's energy strategy, observers note.
LNG imports from the Bontang plant on Borneo Island, which account for more than 90 percent of overall LNG imports from Indonesia, will be reduced dramatically, according to the sources. Japanese companies such as Tokyo Gas Co. and Kansai Electric Power Co., which signed long-term deals to import a total of 14.54 million tons of LNG annually from the plant, will see contracts on about 12 million tons expire from 2010 through 2011.
Negotiations to renew these contracts began in earnest last year, but despite Japanese efforts the imports likely will still be halved from 12 million to 6 million. Such a reduction would account for more than 10 percent of the country's overall LNG imports, which totalled about 58 million tons last year.
Japan hopes to compensate for the reduced amount with imports from other locations such as the Sakhalin-2 project plant in Russia. However, with the Russian government recently cancelling a permit for an oil and gas development project by an international joint venture, the prospects for domestic gas and electric company procurement have become increasingly gloomy.
Indonesia claims there are growing calls for greater domestic consumption of LNG, as production from gas fields near the Bontang plant has been declining and the country is short on energy supplies.
Indonesia signaled its new stance toward Japan earlier this year, indicating it would not renew some LNG business contracts set to expire in the next few years in order to reduce exports.
Japanese companies are currently negotiating with the Indonesian government on the assumption that imports will be cut by half in the renewed contracts. But with the Indonesian government suggesting it may call for further dramatic reductions, negotiations could become even more complicated, the sources said.
LNG imports from countries such as Indonesia, Malaysia and Australia largely went to Japan until the 1990s. In recent years, however, the United States, China and South Korea, among other nations, have sharply increased LNG imports as they seem excellent value in the wake of rising oil prices.
Indonesia plans to ramp up exports of LNG to China from 2009. "Cuts in [LNG] exports to Japan signal that global competitions over energy sources have been intensifying," an oil industry source said.
(Sep. 29, 2006)