Pertamina turns to US for LNG supply flexibility

05 December 2013 14:51 Source:ICIS

Indonesia’s state oil and gas producer Pertamina has joined the growing list of Asian companies to take LNG export capacity in North America, signing an agreement with Cheniere Energy to lift LNG from its planned Corpus Christi project in South Texas.

The deal will see Pertamina lift 800,000 tonnes per annum over a 20-year period from the proposed three-train 13.5mtpa project, with supply expected to start as early as 2018, the companies said in separate statements on 4 December. The state company will lift the volumes on a free on board (FOB) basis using its own vessels.

Pertamina, a traditional LNG exporter and operator of the Bontang and Arun liquefaction plants, has recently stepped up its search for stable LNG supplies outside Indonesia to meet domestic demand which is projected to outstrip supply.

The company already jointly operates a floating storage and regasification unit (FSRU) in west Java and is in the process of building a second FSRU in central Java and converting its existing Arun LNG plant into a receiving terminal.

The state company is also understood to have signed a heads of agreement with the proposed Jordan Cove project on the US west coast in Oregon, developed by Calgary-based company Veresen, and has turned to US LNG supply to provide it with the flexibility it needs to balance its export obligations with meeting its growing domestic supply commitments.

“This deal is not unexpected… it plays with the long-term strategy of the company to become an LNG importer,” said Tony Regan, principal consultant at Singapore-based Tri-Zen.

“Pertamina has already started diverting some of the Bontang LNG production into the domestic market but has been reluctant to commit to LNG imports as these could be more expensive. This deal is the first step towards potentially large volumes being imported, but the gap between domestic supply and demand will become so wide that Indonesia might need to import as much as 20mtpa by 2020.”

Traction for Corpus Christi

The deal is the first commercial agreement from Corpus Christi, a project which has been marketed in fits and starts. Initially, Corpus Christi was understood to have envisaged offerings on a delivered-ex ship (DES) basis and geared more toward the South American markets.

This agreement includes a tolling price of 115% of the US Henry Hub natural gas benchmark futures settlement plus a fixed tolling cost of $3.50/MMBtu, according to a US Securities and Exchange Commission (SEC) document filed by Cheniere after the announcement.

Cheniere CEO Charif Souki said that the Corpus Christi project was halfway through its regulatory approvals. “We expect to complete all necessary steps to begin construction on our second LNG export terminal by the second half of 2014”.

The Corpus Christi application to sell LNG to countries outside free trade agreements (FTA) with the US Department of Energy (DOE) is fourth in line for approval, according to the Federal Energy Regulatory Commission (FERC). Most of the world’s biggest LNG buyers – including Japan, China and India – are considered non-FTA nations; this also includes Indonesia.

As of 8 November, filing with FERC showed the regulatory agency was currently reviewing responses from Corpus Christi on several environmental and engineering requests. Once the agency deems the project has enough information to complete a draft environmental impact statement, FERC will issue a schedule notice for the project, which will include the final issuance date.

However, the Corpus Christi SPA is subject to certain conditions. A separate omnibus agreement states that if the final investment decision for the sixth train of the Sabine Pass project is made before Corpus Christi’s first train, Pertamina will terminate its SPA with Corpus Christi and convert the agreement for an equivalent amount of LNG from Sabine Pass.

Whether the remainder of the Corpus Christi volumes will be marketed on an FOB basis is unclear. Cheniere has sub-chartered three newbuild vessels, partly for its cumulative 2.0mtpa that Cheniere will be able to utilise for its own trading purposes.

One vessel by Greek shipowner Dynagas will arrive in 2015, while two more vessels, ordered by Canadian shipowner Teekay, will arrive in 2016.

By Ruth/Abache Liao/Abreu