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South Korean firms agree on new LNG prices-Indonesia

Reuters - Friday, June 26

JAKARTA, June 26 - South Korean steel maker POSCO <005490.KS> and utility firm K-Power have agreed to a base liquefied natural gas price equivalent to an oil price of $38 per barrel, Indonesia’s energy minister said on Friday.

“Previously, we have been criticised because the price to South Korean firms was lower. Now, we have adjusted the price higher, and it will be based on a $38-per-barrel oil price,” Purnomo Yusgiantoro told reporters.

He did not disclose the previous price.

“The South Korean buyers also submitted a comfort letter the possibility of reviewing the price in future,” he said.

In 2004, BP <BP.L> signed an LNG supply deal with K-Power for the Korean firm to take 600,000 tonnes per year starting in 2006 for 20 years. K-Power also has an option to buy an extra 200,000 tpy to 2010. POSCO Co. signed an agreement with the Tangguh LNG consortium to buy 550,000 tpy over 20 years. In 2006, when the oil price was at $70, Indonesia agreed to raise the price of LNG from Tangguh sold to China’s CNOOC <0883.HK> to an equivalent of oil at $38 a barrel, versus $25 previously.

CNOOC had signed a contract in 2002 to buy 2.6 million tpy from the Tangguh LNG project.

Indonesia hopes the Tangguh project, about 3,000 km (1,880 miles) east of Jakarta, will help offset declining output from other LNG facilities and provide much-needed revenue. Tangguh is expected to produce 7.6 million tpy from two trains, with first delivery expected from end of June or early July.

“We haven’t decided when we will send the first LNG cargo from Tangguh,” Yusgiantoro said on Friday.

An official at BP Indonesia said there was no technical problem with the Tangguh project.

“In fact Tangguh has begun producing liquefied natural gas and is expecting first commercial cargo shipment in a few weeks’ time,” Nico Kanter, BP Indonesia offical, said in an email to Reuters.

Tangguh also has secured contract to supply 3.6 million tpy to U.S. firm Sempra <SRE.N>.