Indonesia, Chubu Electric in talks on LNG supply

JAKARTA, May 14 (Reuters) - Indonesia is holding talks on supplying liquefied natural gas (LNG) to Japan's Chubu Electric Power Co (9502.T) from its Tangguh plant in Papua, an official at the oil and gas watchdog said on Thursday.

The global economic crisis has pushed down LNG demand around the world and meant that Indonesia, the world's number three LNG exporter after Qatar and Malaysia, has more available to supply, particularly with the Tannguh project due to come on tap soon.

In the past, Jakarta has sometimes failed to meet its contractual commitments to traditional markets such as Japan, South Korea and Taiwan, often agreed more than a decade ago, as it sought to switch more supply to the domestic market.

"We are in talks with Chubu for LNG supply from Tangguh. We are talking on volume and other issues," Priyono, the chairman of the watchdog, known as BPMIGAS, told reporters.

"We want to increase state revenue from selling more LNG. We hope to settle the deal this year," added Priyono, who goes by only one name.

He did not give any details on the volume or price.

In December last year, Indonesia failed to reach an agreement with Tokyo Gas (9531.T) over supplying 500,000 tonnes of LNG to the firm.

But last July, Indonesia reached an initial agreement to supply LNG to Korea Gas Corp (KOGAS) (036460.KS).

Indonesia will sell below 1 million tonnes per year (tpy) of gas to KOGAS at a price linked with Japan's crude cocktail.

The LNG Indonesia is offering will come from the Tangguh project, part of supplies diverted from U.S. firm Sempra Energy (SRE.N).

Sempra has a 20-year contract to lift 3.6 million 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.

The Tangguh project is due to start delivery of LNG at the end of June, according to energy minister Purnomo Yusgiantoro.

Indonesia LNG output is forecast to drop to 349 cargoes in 2009 from 359 cargoes a year ago. (Reporting by Muklis Ali; Editing by Ed Davies)