Indonesia Approves Donggi-Senoro Liquefied Natural Gas Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--After a year of uncertainty over the Donggi-Senoro liquefied natural gas (LNG) project in the Central Sulawesi region of Indonesia, the government of Indonesia finally agreed that the project stakeholders could export 75% of the product, which effectively puts the project back in the running. The government has previously insisted that all LNG produced be allocated to the domestic market, which stalled the project.

On June 17, Darwin Saleh, Indonesia's Minster of Energy, told local reporters that the government had approved the terms of the Donggi-Senoro project and that the company's promoters could export the bulk of the product, while allocating about 25-30% for the country's domestic needs.

The jinxed project was steeped in controversy about whether the LNG should be exported to fetch a higher price, or sold in the domestic market, where the commodity is priced lower than international levels.

As per reports, $1.7 billion is to be invested in the upstream development and an estimated equivalent of $2 billion in downstream activities, with project commissioning scheduled for 2013-14.

The 2 million-ton-per-year project is being developed by a consortium called PT Donggi Senoro. The consortium includes natural gas and petroleum company PT Medco E&P Indonesia (Jakarta, Indonesia), a business arm of integrated energy firm PT Medco Energi Internasional Tbk (JSE:MEDC) (Jakarta). Medco E&P holds a 20% stake in the consortium.

Other members of the consortium include Japanese trading company Mitsubishi Corporation (TSE:8058) (Tokyo, Japan), which holds a majority 51% stake, and Indonesia's PT Pertamina (Jakarta), which holds a 29% stake in the venture.

Production of LNG at the site was supposed to begin in 2010, but the then-Indonesian vice president insisted that all the gas should be directed to the local market to feed the country's growing energy demand, spurring Japanese electricity companies Chubu Electric Power Company Incorporated (TSE:9502) (Nagoya-shi, Japan) and The Kansai Electric Power Company Incorporated (TSE:9503) (Osaka, Japan)--the two main planned international buyers of the produce--to abandon the project. Both companies were supposed to purchase 1 million tons per year of LNG each according to the original plan.

This caused the project promoters to worry about Mitsubishi's following the other Japanese companies and withdrawing from the project, which would put the project funding in jeopardy. This is because funds for the project were supposed to be sourced from the Japan Bank for International Cooperation (JBIC) (Tokyo), at the behest of Mitsubishi.

The controversy surrounding the Donggi-Senoro project was fuelled by the Indonesian government's efforts to find ways and means of bridging the LNG demand-supply gap, from which the country suffers. Indonesia currently faces a 2.5 billion-cubic-feet-per-day LNG deficit, which it is trying to address.

Meanwhile, Petramina is reportedly thrilled with the decision and told local reporters that it would move forward to reach agreements with buyers.

"Then we will move to bid and continue with construction," a Pertamina executive said. "We are optimistic that the project could meet the output target in 2013."

"The project will contribute a huge amount of revenue to the Indonesian government," an official of Medco E&P told reporters. "The domestic allocation will have a multiplier effect to the local industry."

Domestic companies such as Indonesia's state-owned power producer PT Perusahaan Listrik Negara (Jakarta) have evinced interest in buying the gas produced by the project.

Prospective international buyers for the gas include Korea Gas Corporation (KSX:036460) (Gyeonggi-do, South Korea) and Kyushu Electric Power Company Incorporated (TSE:9508) (Fukuoka, Japan). Together, they will purchase 1 million tons per year of LNG from Donggi-Senoro and replace Kansai Electric, Pertamina officials told local media.

Meanwhile, the LNG plant will source its natural gas requirements from the Senoro and Matindok gas fields. While the Senoro gas block is owned jointly by Pertamina and Medco E&P, the Matindok block is owned solely by Pertamina.

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