Indonesia urges higher gas price for Sulawesi LNG project

JAKARTA May 20 (Reuters) - Indonesia has urged PT Medco Energi International and state oil firm Pertamina to review their natural gas prices before building a liquefied natural gas (LNG) plant in Sulawesi, a senior energy watchdog official said on Wednesday.

Pertamina, Indonesian energy firm Medco (MEDC.JK), and Japan's Mitsubishi Corp. (8058.T) have agreed to build the $1.4 billion Donggi-Senoro LNG plant in Sulawesi, with a capacity of 2 million tonnes per year. It will receive natural gas supplies from Pertamina and Medco.

The project has been criticised by legislators who say the price at which the natural gas will be sold to the LNG plant is too low.

"The government wants a higher price," Priyono, chairman of oil watchdog BPMIGAS, told reporters.

"We want the gas price will be based on $40 per barrel of Indonesia's crude price as the lowest. It will be around $3.8 per million British thermal unit," he said.

Priyono said BPMIGAS, Pertamina and Medco were still in negotiations about the price.

Indonesia's mines and energy minister Purnomo Yusgiantoro said last month the ministry also wanted Pertamina and Medco to review the size of the gas reserves in Sulawesi.

A Pertamina official had said previously that the combined gas reserves in Sulawesi were around 2 trillion cubic feet.

In March, Medco signed an agreement to supply a total of 2 million tonnes a year of LNG to two Japanese buyers.

Under the agreement, Medco will sell 1 million tonnes of LNG from the Donggi-Senoro LNG plant to Chubu Electric Power Co (9502.T) and 1 million tonnes to Kansai Electric (9503.T). The contracts will run for 15 years.

The energy ministry official said previously that according to the ministry's findings, the gas reserves in Sulawesi were insufficient to meet the 15-year contract that Medco and Pertamina signed with Chubu and Kansai.

The plant would give LNG production in Indonesia, the world's third-biggest LNG exporter after Qatar and Malaysia, a much needed boost as the country struggles to juggle exports with rising doemstic energy needs.

Indonesia has far more gas than oil but it faces limited supplies due to long-term LNG export commitments, which it is reviewing. The country has about 180 trillion cubic feet of natural gas reserves.

(Reporting by Muklis Ali; Editing by Kim Coghill)