OREANDA-NEWS. July 15, 2014. After negotiations resulting in China having to pay a higher price for gas sourced from an Indonesian field, the government is looking to renegotiate another gas contract, this time with South Korea.

“Negotiation with China was the most difficult, but we succeeded. After this, our team will work [to renegotiate gas] for [South] Korea,” Energy and Mineral Resources Minister Jero Wacik said on Monday, in reference to the renegotiated selling price of gas to Fujian province in China.

The new renegotiation would involve South Korea’s K-Power and Posco, said Widhyawan Prawiraatmadja, the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) deputy for commercialization.

The government announced on Monday that it had closed a deal to revise a contract with Chinese state-owned oil and gas company China National Offshore Oil Corp. (CNOOC), which increased the selling price for liquefied natural gas (LNG) from the Tangguh plant in Papua starting Tuesday. The new price is USD 8 per million British thermal units (mmbtu) or more than double the previous price tag of USD3.35 per mmbtu.

Both parties also agreed to remove a cap on the benchmark Japan Crude Cocktail (JCC) to allow price changes.

Under the new contract, the gas price sold to Fujian will see a gradual increase until 2017. In 2018, the price can be negotiated again. The contract to sell gas to Fujian is good until 2034.

Widhyawan said that renegotiation of the gas selling price with the South Korean companies would likely be tougher because, unlike the deal with Fujian, there were no terms allowing for a price review under the existing agreement.

“There is a strong legal contract. We will try no matter what. The price for Fujian is already lifted, why can’t we have the same [for South Korea]?” Widhyawan added.

Gas sold to K-Power and Posco, which also comes from the Tangguh plant, is priced at USD 4.10 per mmbtu, according to Widhyawan. The total volume sold reaches 1 million tons per year or 16 cargoes, distributed equally to the two firms.

A cap on the JCC, which is currently USD 38 per barrel for the South Korean customers, has resulted in the gas being sold below average market price.

Indonesia is estimated to have a significant amount of gas resources, with around 104 trillion standard cubic feet (tscf) in proven and 48 tscf in potential gas reserves, making it the 13th-largest owner of proven natural gas reserves in the world and the second-biggest in the Asia-Pacific region after China, according to the International Energy Agency.

Most of the gas is sent abroad as domestic market absorption remains low particularly due to inadequate infrastructure to support deliveries.

The new gas selling price to Fujian, which had remained unchanged since 2006, has been praised because the new management will make the country enjoy more income from its own resources — although it is subject to another renegotiation in 2018.