A liquefied natural gas (LNG) supply deal between Indonesia’s state-owned Pertamina and a consortium of Japanese buyers is set to end amid demand uncertainty and a supply glut exacerbated by the COVID-19 pandemic. The deal dated back when a group of Japanese buyers agreed to purchase LNG from Pertamina’s then-unbuilt Bontang terminal in 1973, making it one of the world’s oldest contracts.
The terminal launched first LNG production in 1977, with some buyers signing a separate deal in 1981. Pertamina and the six buyers agreed to renew the contract in 2009 by merging both deals into one for an annual supply of 3 million tons through 2015 and 2 million tons through this year. The price was agreed at 15.4% of Japanese oil prices, making it one of the most pricier contracts that Japanese LNG buyers have.
Among the buyers, Kyushu Electric said it had no plan to extend the deal due to excess supplies. Toho said it would not renew because it was costlier than its other term deals. Jera Co. is mulling options to purchase necessary volumes after the contract expires in December. Other buyers are Kansai Electric Power Co., Nippon Steel, and Osaka Gas. Pertamina’s gas subsidiary PGN has yet to comment on the matter.
Japan’s LNG imports fell 6.5% in 2020 due to nuclear plants restarts, growing renewable power generation, and lower power demand due to the pandemic. Gas market analysts expect that Japanese LNG importers may let more contracts expire in the coming years, missing the benefit of long-term agreements which is a secured supply at a fixed rate. According to the analysts, long-term deals account for 66% of the global LNG trade in 2019, down from 84% in 2009.
