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Who could be interested in LNG from InterOil’s proposed facility?

May 8th, 2008 · 1 Comment

We wrote yesterday how the LNG market is booming, especially in Asia.LNG sells at a significant premium in Asia, indicating the demand/supply situation is especially tight there. Let’s dig a little deeper into this. 

The two big countries in the regio are China and Japan. Each has it’s own energy problems. China, although a producer, has seen it’s energy demands rising so spectacularly that it’s scanning the globe to secure supplies.

Relatively clean energy, like LNG, is even more important to them as sixteen of the 20 most polluted cities of the world are in China, and China derives 70% of its energy production from coal, a dirty fuel. Canadian newspaper Financial post argued:

China is already recognizing its need to secure supplies of clean energy over the next several decades and has started buying liquid natural gas (LNG) production several years forward. Investors should get in early on this trend and invest in LNG producers.

Indeed. However, China might be making all the headlines these days, let’s not forget that other economic giant in the regio, Japan. Japan is the largest importer of LNG followed by Korea, the United States and Europe. Japan is facing some specific import problems, as exporters almost everywhere in the world are facing one problem or another, as we reported yesterday.

More specifically, exports from Indonesia are in decline. According to a report from Bloomberg:

Indonesia has failed to meet LNG supply commitments to Asian customers since at least 2002 as reserves in several fields feeding its existing plants in Bontang and Arun in Aceh province declined faster than expected while domestic demand rose.

That same article contains more very interesting information:

Indonesia, the world’s third- largest exporter of liquefied natural gas, will get record price for the fuel supplied to Japan in a contract extension starting 2011 as buyers seek to secure supply amid rising demand. The Southeast Asian nation has contracts with a group of Japanese utilities including Kansai Electric Power Co. and Osaka Gas Co. to supply a total of 12 million metric tons of LNG a year, which will expire by March 2011 [emphasis by shareholdersunite].

The Southeast Asian nation will cut LNG supply to Japan by 75 percent to 3 million tons a year for the first five years after current contracts expire, Takhyan said. The supply will be reduced to 2 million tons annually in the five years after that.

Now, to answer that question, who would be interested in securing LNG from InterOil’s Elk/Antelope field, we think we have a couple of candidates here.

The contract will expire in 2011, Liquid Niugini, the planned LNG facility by InterOil, Merrill Lynch, and Clarion Finanz, will be almost ready by then, if things go according to plan. And perhaps these parties might help a little in those plans…

We also read that Korea is the second largest importer of LNG. Hmm, no lack of candidates with deep pockets. As IOC’s stock price is climbing ever higher, more and more people seem to start realizing what is happening here.

Tags: IOC

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