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One of the world’s oldest LNG supply deals may soon end amid a global glut of supply
Some members of a Japanese consortium said they will not renew a contract with Indonesia dating back to 1973 when it expires this year
LNG history thread below
https://www.bloomberg.com/news/articles/2020-09-09/one-of-the-world-s-oldest-lng-deals-is-unraveling-on-the-virus?sref=UXGbB6iF
Some members of a Japanese consortium said they will not renew a contract with Indonesia dating back to 1973 when it expires this year
LNG history thread below
https://www.bloomberg.com/news/articles/2020-09-09/one-of-the-world-s-oldest-lng-deals-is-unraveling-on-the-virus?sref=UXGbB6iF
Kyushu Electric and Toho Gas aren’t planning to renew the deal
The LNG pact can be traced back to 1973, when a group of Japanese firms agreed to purchase LNG from Indonesia, helping state-owned Pertamina get financing to launch its first export plant in 1977
The LNG pact can be traced back to 1973, when a group of Japanese firms agreed to purchase LNG from Indonesia, helping state-owned Pertamina get financing to launch its first export plant in 1977
The buyers were Chubu Electric, Kansai Electric, Nippon Steel, Kyushu Electric, Osaka Gas and Toho Gas
It was the first time most of them signed a deal to buy LNG
Remember, Japan only imported it’s first LNG cargo in 1969. It was still a relatively new form of transporting gas
It was the first time most of them signed a deal to buy LNG
Remember, Japan only imported it’s first LNG cargo in 1969. It was still a relatively new form of transporting gas
The deal set the stage for Indonesia to become the world’s top LNG exporter (for two decades)
With the supply pact, Pertamina was able to begin development of the Badak gas fields (discovered a few years prior) and the connecting Bontang LNG plant
With the supply pact, Pertamina was able to begin development of the Badak gas fields (discovered a few years prior) and the connecting Bontang LNG plant
A little more context: there were only 4 LNG plants on earth before Pertamina signed the 1973 deal. For the Japanese, it was another gamble on a new industry that ended up paying off and paving the way for more supply deals
For Indonesia, it is referred to as “The 1973 Contract”
For Indonesia, it is referred to as “The 1973 Contract”
Pertamina completed the Bontang plant in just 42 months, and it began exports in 1977
With an insatiable appetite for LNG forming, some of the Japanese consortium members signed an additional supply deal with Pertamina in 1981
With an insatiable appetite for LNG forming, some of the Japanese consortium members signed an additional supply deal with Pertamina in 1981
Not wanting to be outdone, Tokyo Electric and Tohoku Electric signed a 20-year deal in 1981 with Pertamina
Nearly all the major Japanese LNG buyers had supply deals with Indonesia to some degree
Nearly all the major Japanese LNG buyers had supply deals with Indonesia to some degree
Side note — the 1973 deal was also the first LNG contract to price its supply as a percentage of crude oil (at the time, the formula was 14.85% to oil plus $0.60/mmbtu)
After that, nearly all contracts adopted a similar oil indexation mechanism. Only recently is that changing
After that, nearly all contracts adopted a similar oil indexation mechanism. Only recently is that changing
By 1984, Indonesia overtook Algeria to be the world’s top exporter of the fuel. It’s biggest customer was Japan
But production peaked in 1999 as gas fields depleted. Qatar’s production overtook Indonesia in 2006
But production peaked in 1999 as gas fields depleted. Qatar’s production overtook Indonesia in 2006
Indonesia is still a major supplier of the fuel — the 7th largest exporter
But with Japan’s LNG demand on the decline, Indonesia has been scrambling to find new buyers
Ship tracking data illustrates this. In 2019, China was the biggest buyer of Indonesian LNG for the first time
But with Japan’s LNG demand on the decline, Indonesia has been scrambling to find new buyers
Ship tracking data illustrates this. In 2019, China was the biggest buyer of Indonesian LNG for the first time
Japan had been asking for less Indonesian gas during negotiations a decade ago
In 2009, with the 1973 and 1981 deals near expiration, Pertamina and the six buyers agreed to combine them into one pact, significantly reducing the volume to 3mtpa to 2015 and 2mpta to 2020
In 2009, with the 1973 and 1981 deals near expiration, Pertamina and the six buyers agreed to combine them into one pact, significantly reducing the volume to 3mtpa to 2015 and 2mpta to 2020
And Pertamina’s contract was expensive, making it an easy target for chopping
At a 15.4% slope to crude, it is one of the costliest Japan has, according to data compiled by BNEF
At a 15.4% slope to crude, it is one of the costliest Japan has, according to data compiled by BNEF
More broadly, the end of the 1973 deal underscores how a global supply glut and persistent low spot prices are hurting long-term agreements that the LNG industry was built on
It isn’t just Japan. Total long-term deals fell to 66% of LNG trade in 2019 from 84% a decade earlier
It isn’t just Japan. Total long-term deals fell to 66% of LNG trade in 2019 from 84% a decade earlier
Indonesia’s decades of LNG dominance may never have materialized without the 1973 pact and the buyers hungry for the fuel
And as Japan’s hunger subsides, Indonesia is forced to search for a new outlet
(Here are pics of the 1st time Indonesian gas was delivered to Japan's Chubu)
And as Japan’s hunger subsides, Indonesia is forced to search for a new outlet
(Here are pics of the 1st time Indonesian gas was delivered to Japan's Chubu)
