Following the shock failure of recent bidding to win a supply contract to Taiwan and the decision by a Japanese firm to cut LNG imports from Indonesia an internal market is looming as the saviour for the once dominant industry.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro told the Jakarta Post that the government had laid out plans to build two LNG receiving terminals in Java, located in East Java and West Java respectively, as the first step to opening up the island to LNG supply. He expected the projects would be completed by 2007.
Until now none of the country's product has been supplied to the local market as the government preferred to export all its LNG as there were few competing suppliers.
However, Indonesian dominance of the world LNG market has fallen recently with the arrival of several international competitors including Malaysia, Australia, Qatar and Russia.
Last week, Japan's Tohoku Electric Power Co. decided to cut its LNG imports from Indonesia from three million tons to 830,000 tons annually as the firm wanted to diversify its LNG sources.
Also last week, the Tangguh LNG project failed to win the tender to supply LNG to Taiwan's state-owned electricity firm Taiwan Power Co.
The Post reported that the Tangguh project, which is designed to have an installed capacity of 7 million tons per year, has thus far only secured a contract to supply 2.6 million tons per year to China's Fujian province.
The fear now is that the failure to win Taiwan's tender could put the Tangguh project in limbo especially considering the range of large LNG projects currently under development in the region.
Competing gas projects include the giant Russian Sakhalin project, Australia's NWS, the Bayu-Undan project off Darwin and the continuing development of Papua New Guinea's resources. However, the development of an internal Indonesian market should enable the Tangguh project to receive the go-ahead.
Indonesia now has two LNG plants, respectively located in Arun, Aceh, and Bontang, East Kalimantan, with a total production capacity of 31.6 million tons per year. The third LNG plant is being planned for the Bird's Head area of Papua.
