UPDATE 2-Indonesia in deal with KOGAS on Sempra's LNG supply

(Adds details, background)

By Muklis Ali

JAKARTA, July 23 (Reuters) - Indonesia has reached an initial agreement to supply liquefied natural gas (LNG) to Korea Gas Corp (KOGAS) (036460.KS) in another sign that global producers are keen to sell their supplies to the higher-paying Asian market.

Indonesia would sell the gas -- below 1 million tonnes per year (tpy) -- at $20 per million British thermal units (mmBtu) based on a crude oil price of $120 a barrel, Edi Purwanto, deputy chief of Indonesia's energy watchdog BPMIGAS told reporters.

The deal was tentatively for 2010 through 2012, Purwanto said.

"We will sign a heads of agreement possibly by the end of this year," Purwanto said, adding that it was a new deal.

The price is in line with a contract extension reached in March between Indonesia and Japanese buyers.

The two parties then agreed a price around $16 per mmBtu based on crude prices at $100 a barrel, but the duration now is shorter than the Japanese deal for 10 years. [ID:nJAK261782]

Asia still buys most of the world's LNG, with buyers like Japan and South Korea so dependent on the gas, they offer shippers enough to cover the extra cost of transporting to Asia and still make a profit.

ANOTHER DIVERSION

"The LNG will come from Tangguh as part of supply diverted from U.S. firm Sempra," Purwanto said.

If the two sign a deal, it would be the second time that Sempra is diverting supply from Tangguh, seeking out Asian buyers, who are willing to pay higher prices for their gas.

Sempra has a 20-year contract to lift 3.6 million tonnes per year (tpy) of LNG from the 7.6 million-tpy Tangguh project, led by BP (BP.L). It has the right to divert half its volumes to customers other than its own new terminal in Mexico.

Sempra bought the LNG when long-term prices were below $6 per mmBtu and many companies thought the U.S. market offered the best long-term opportunity.

Recently, however, Asian buyers have consistently paid about $2 per mmBtu more than Henry Hub or the NBP benchmark prices, fearing supplies may not be as ample as expected.

Thailand's top energy firm PTT PCL PTT.BK said in May it was in talks to buy 1 million tpy of LNG -- gas chilled to liquid form for easier transport -- from Sempra's diversion cargoes from Tangguh starting in 2011 or 2012. [ID:nSP24373]

Indonesia was still negotiating with other companies, including Tokyo Gas (9531.T) and PTT on further diversions as part of the Sempra clause, Purwanto said.

The news came just a week after BPMIGAS said Indonesia might delay LNG delivery to Chinese and two South Korean buyers POSCO (005490.KS) and K-Power, from Tangguh as long as it does not manage to negotiate higher prices on existing contracts. [ID:nJAK63778]

"The responses from those companies are positive. There is room for price increase," Purwanto said, without giving further details. "We are ready to pay a penalty, if we do not reach a deal on new price," he added.

Tangguh currently has supply contracts with Sempra Energy, China National Offshore Oil Corp, K-Power and POSCO.

Asked to comment on the news, an official from state-run KOGAS in charge of Indonesian operations was non-committal.

"It's not like we haven't done business with the Indonesians, so if there are more volumes from Tangguh available and if we feel like we need more LNG imports, we will definitely consider the Tangguh project," he said. (Additional reporting by Angela Moon in Seoul) (Writing by Ed Davies and Annika Breidthardt; Editing by Ramthan Hussain)