Medco, Pertamina to Sell $16 Billion of Gas to Japan

By Bambang Dwi Djanuarto and Leony Aurora

Aug. 29 (Bloomberg) -- PT Medco Energi Internasional and PT Pertamina have agreed to sell $16 billion of gas to a Mitsubishi Corp.-led venture that is building Indonesia's fourth liquefied natural gas plant. Medco shares climbed.

Indonesia's biggest publicly traded company and state-run Pertamina will supply 1.7 trillion cubic feet of gas from two fields in Sulawesi over 15 years to the Senoro LNG plant on the island, R. Priyono, chairman of oil and gas regulator BPMigas, said in Jakarta today after a signing ceremony for the initial accord.

The agreement clears the way for the construction of the 2-million-ton-a-year LNG plant, delayed for more than a year because negotiations over the gas price dragged on. The project will help Japan secure energy supplies after Indonesia cuts shipments to the world's second-biggest economy by 75 percent following the expiry of current contracts by March 2011.

``This is huge. It could bring a significant revenue boost to Medco,'' said Jordan Zulkarnaen, head of research at PT Kresna Graha Sekurindo in Jakarta, adding Medco's share price may further rise. ``The market needs time to digest the news.''

Medco climbed as much as 4.8 percent, the biggest gain since Aug. 8, to 4,950 rupiah and was at 4,875 rupiah at midday break. The benchmark Jakarta Composite Index rose 0.3 percent.

`Milestone'

``This is a milestone to start the construction,'' said Hidetoshi Otsuka, chief operating officer at PT Donggi Senoro LNG, the venture 51 percent owned by Mitsubishi. Production is scheduled to start in 2012 and the LNG will be sold to Japan, Otsuka said.

Medco owns 20 percent of the plant and Pertamina has 29 percent. The $1.4 billion LNG plant will be fed by gas from the Senoro field, in which the two Indonesian companies hold equal stakes, and the Pertamina-owned Matindok area, both in Sulawesi.

The gas price will be linked to Japan's crude oil import costs, known as the Japan Crude Cocktail, and the estimated value is based on oil at $100 a barrel, Priyono said.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. On arrival, it is turned back into gaseous form for delivery to users such as power plants.

To contact the reporters on this story: Leony Aurora in Jakarta at laurora@bloomberg.net; Bambang Dwi Djanuarto in Jakarta at bbjakarta@bloomberg.net.