OREANDA-NEWS. May 22, 2013. Indonesia's upstream regulator Oil and Gas Temporary Executive Task Force, or SKK Migas, expects to start renegotiations with China's CNOOC this month for the price of LNG from Tangguh, an Indonesian government official said.

SKK Migas's Deputy Chairman for Commercial Control Widhyawan Prawiraatmadja said SKK Migas has notified CNOOC over Indonesia's intention to renegotiate the Tangguh LNG price.

"We have sent a formal letter about it. Indonesia aims to renegotiate Tangguh LNG price, we expect to increase the LNG price to reach regional market price," Prawiraatmadja said.

He added that renegotiations are expected to start this month and that the new price is expected to be retroactively effective from January 1, 2013.

While no dates for the renegotiation was given, the team from Indonesia will comprise delegates from SKK Migas, the energy and mines ministry and the finance ministry.

CNOOC officials could not be reached for comments.

Indonesia's President Susilo Bambang Yudhoyono said in his twitter late Tuesday that China has agreed to renegotiate its Tangguh LNG price.

"China's leaders have agreed over my proposal to renegotiate Tangguh price in a bid to allow Indonesia to get higher value," Yudhoyono said in his twitter account @SBYudhoyono.

This was confirmed Wednesday by SKK Migas Chairman Rudi Rubiandini.

"China has agreed, we will start to negotiate based on business to business," Rubiandini said.

Under the proposed new formula, the LNG price will fluctuate based on movements in crude oil prices, Platts reported previously.

This is the second time Indonesia has asked for a price review though the LNG contract stated that Indonesia can review the price of Tangguh LNG every four years if oil prices rise significantly.

The last time the LNG price was reviewed was in 2006, where Tangguh operator BP Indonesia and CNOOC amended the sale and purchase agreements by raising the ceiling crude oil price on the Tangguh contract to USD 38/barrel from the USD 25/b that was signed in 2002.

This allowed the average LNG price to rise to USD 3.50/MMBtu from USD 2.60/MMBtu on an FOB basis.

LNG prices are linked with global oil prices. The ceiling price determines the higher LNG price that Indonesia can get. The government is involved in price negotiations as under Indonesia's typical production sharing contracts for gas, the production split is 30% for contractor and 70% for the government.

The Tangguh LNG project in Bintuni Bay at Indonesia's far eastern Papua province, comprises two trains with a total capacity of 7.6 million mt/year. The project is based on 14.4 Tcf of proven gas reserves in three neighboring production sharing contracts.

BP has a 37.16% interest in Tangguh. The other partners are CNOOC (13.9%), MI Berau BV (16.3%), Nippon Oil Exploration (12.23%), KG Companies (10%), LNG Japan (7.35%) and Talisman (3.06%).

Tangguh has five long-term supply contracts. They are with China's CNOOC for 2.6 million mt/year over 25 years; South Korea's Posco for 550,000 mt/year for 20 years; South Korea's SK E&S for 600,000 mt/year for 20 years; Sempra for 3.7 million mt/year for 20 years; and Japan's Tohoku Electric Power for 125,000 mt/year for 15 years starting 2010.

Posco and SK E&S buys Tangguh LNG at an average price of USD 3.36/MMBtu and USD 3.50/MMBtu respectively.