Indonesia and Japanese buyers have agreed on a price for the extension of liquefied natural gas (LNG) contracts which are due to expire in 2010 and 2011, an official of state oil and gas firm Pertamina said on Saturday.
The official, who declined to be identified, said the price based on crude oil prices will be around $16 per million British thermal unit if oil prices are at $100 per barrel. Indonesia, the world's second-biggest LNG exporter after Qatar, has an 8.4 million tonne-per-year (tpy) contract that expires in 2010 and another 3.6 million-tpy deal ending in 2011.
Indonesia and Japan have been negotiating for years on the extension of the contracts, but talks were stuck on differences over the price. Japan is the world's largest importer of LNG and Indonesia is Japan's number one supplier.
The new contracts are for 3 million tonnes a year over five years and another 2 million tonnes a year over the next five years, far below the current contracts which total 12 million tonnes a year. Indonesia has said the volume of the extended contracts will be lower because of declining output and rising domestic demand.
"We have agreed on a pricing that is based on crude prices. However, Indonesian and Japanese buyers will talk further on other details before signing the extension contracts," the Pertamina official, who is close to the negotiations, told Reuters.
"The price agreement will benefit Indonesia despite the lower volume." He gave no other details. But Japan faces growing competition for supplies of LNG - natural gas cooled to liquid form for transport - from fast-growing markets such as China and India.
Indonesia, Asia-Pacific's only Opec member, has failed to meet all of its long-term contractual commitments for a number of years due to depletion of its gas fields and higher domestic demand, tightening the LNG market and driving up prices.
Indonesia's LNG production is set to slide by 4 percent this year, and exports may fall even further as it seeks to divert more gas to the domestic market, industry officials had said. LNG production will fall to 358 cargoes of 125,000 cubic metres each this year from 372 cargoes in 2007.