Indonesia targets higher LNG price for Tangguh

JAKARTA, Aug 28 (Reuters) - Indonesia, the world's second-biggest producer of liquefied natural gas after Qatar, wants to get a better price for LNG from the Tangguh project in Papua, the country's chief economics minister said on Thursday.

The government is facing political pressure because the price for LNG from Tangguh for some contracts previously agreed with Asian countries is well below current world prices.

"The benchmark is some contracts Indonesia has made and the best contract in the world will become our reference," Sri Mulyani Indrawati told reporters when asked about the price the government wanted for Tangguh LNG.

She said President Susilo Bambang Yudhoyono and Vice President Jusuf Kalla would monitor price renegotiations.

Yudhoyono said that the price of LNG from Tangguh needed to be renegotiated because the contract made with China was based on a formula using a crude oil price of only $38 a barrel.

"In fact the price of oil now is around the level of $120 a barrel. If we don't struggle (to renegotiate the price) from now...the government will have big losses," Yudhoyono told cabinet members at meeting attended by reporters.

Indonesia hopes the Tangguh project, about 3,000 km (1,880 miles) east of Jakarta, will help offset declining output from other LNG facilities and provide much-needed revenue.

Contracts signed for the BP-led (BP.L) project include that with China National Offshore Oil Corp. (CNOOC) (CEO.N)(0883.HK) to lift 2.6 million tonnes per year (tpy) -- about a third of its capacity -- over 25 years to a new terminal in Fujian.

Tangguh has also secured contracts to supply 3.7 million tpy to the U.S. West Coast via Mexico and 1.1 million tpy to South Korea.

It is expected to produce 7.6 million tpy from two trains, with output expected from the fourth quarter of 2008.

In 2006, when the oil price was at $70, Indonesia agreed to raise the price of LNG from Tangguh sold to CNOOC to an equivalent of oil at $38 a barrel versus the previous $25 level.

"We respect the contract...But if the contract is not good, we have to review that for the welfare of the people," Yudhoyono said.

Last month, an offical at the country's oil and gas watchdog, BPMIGAS, said Indonesia had reached an initial agreement to supply LNG to Korea Gas Corp (KOGAS) (036460.KS) in another sign that global producers are keen to sell their supplies in the higher-paying Asian market.

Indonesia would sell the gas -- less than 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 BPMIGAS said at the time.

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

The two parties agreed at that time a price of 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. (Reporting by Muklis Ali, Editing by Ed Davies and Anthony Barker)