Kogas in talks for stake in Indonesia's Donggi Senoro LNG project

Tuesday, Sep 07, 2010

Korea Gas Corporation is in negotiations to acquire a stake in Indonesia's Donggi Senoro LNG project in Central Sulawesi, a spokesman from the South Korean state-owned company said Monday.

The talks are underway with Japan's Mitsubishi Corporation, which holds a 51% stake in the DS LNG joint venture. The other partners in DS LNG are Indonesia's state oil company Pertamina (29%) and privately owned Indonesian energy player Medco Energi Internasional (20%).

The Kogas spokesman declined to disclose details, such as how large a stake the company wanted to buy. "Details have not been reached yet," the official said.

Kogas said the DS LNG project was expected to produce 2 million mt/year from 2012. The project's timetable, however, has been thrown into doubt after the Indonesian government's protracted deliberations over whether to allocate the gas contained in the Donggi Senoro fields to export or domestic markets.

After a wait of almost a year, Jakarta finally decided in June to allocate at least 25-30% of the gas produced from the Donggi Senoro fields to domestic markets, with the remainder allowed to be exported. The holdup deciding the allocation of gas was likely to delay the project's startup to 2015-2016, Evita Legowo, oil and gas director general at Indonesian Energy and Mines Ministry, said last month.

Donggi Senoro has attracted controversy in Indonesia since an original agreement to allocate the gas as LNG to Japanese buyers came under fire in 2009 due to growing domestic demand. The project consortium signed heads of agreement with Kansai Electric and fellow Japanese utility Chubu Electric in February 2009 to allow each to buy 1 million mt/year of LNG under 15-year contracts. But Kansai Electric later backed out of the deal due to the uncertainty surrounding Indonesia's stance on the project.

In March 2010, Kogas said it was interested in buying 700,000 mt of the Donggi Senoro LNG originally allocated to Kansai Electric, while Japan's Kyushu Electric said it was interested in taking 300,000 mt.

The Donggi Senoro project has an upstream cost of about $1.7 billion for the development of the Senoro field, operated by Pertamina and Medco, and the Matindok field, operated by Pertamina, which together contain 2.3 Tcf of proven gas reserves. Under 15-year supply deals signed by Pertamina and Medco with the DS LNG joint venture in January 2009, the proposed LNG plant would cost about $2 billion and would take 250,000 Mcf/d of gas from Senoro and 85,000 Mcf/d from Matindok.

Meanwhile, Kogas is also in talks to buy a 10% stake in Australian exploration and production company Santos' flagship 7.2 million mt/year Gladstone LNG project in Queensland. A final deal could come as early as this month, a Kogas official said.

Kogas is eyeing acquisitions at a time when South Korea's LNG consumption has increased due to strong demand for electricity on the back of the country's economic recovery. Monthly sales of LNG by Kogas, which has a monopoly on domestic gas sales, have been growing on a year-on-year basis since August 2009, with the exception of last October.

The state utility sold a total of 18.54 million mt of LNG in the first seven months this year, up 33.8% from the same period in 2009 when it sold 13.85 million mt.

The Korea Energy Economic Institute has forecast South Korea's reliance on LNG, used intensively for heating and power generating in the country, would grow to 15.1% of all energy requirements in 2012, from 10.1% in 2000 and 13% last year. The proportion of oil in the nation's energy mix is projected to drop below 40% in 2012 from 53.2% in 2000 and 41.9% last year.

below 40% in 2012 from 53.2% in 2000 and 41.9% last year.

Source: Platts