Indonesia's Tangguh, Bontang warn LNG buyers of delays, cancellations

Indonesia's LNG producers from its two main terminals -- Tangguh and Bontang LNG -- have warned customers in recent weeks of potential cargo deferrals, or cancellations, for deliveries scheduled from late 2021 through to early 2022, according to multiple trade sources and affected utilities.

The supply disruptions are due to upstream issues and declining feedgas for both the BP-operated Tangguh LNG in Papua province and national oil company Pertamina's Bontang LNG in East Kalimantan province, sources said. Pertamina has yet to respond to S&P Global Platts queries.

BP said that on Oct. 29, Tangguh LNG Train 2 tripped due to a technical issue, but was restarted within 24 hours and resumed operations on Oct. 20. At that time, BP did not comment on feedstock issues, or LNG cargo deferrals.

Tangguh LNG comprises two trains each of 3.8 million mt/year capacity and Bontang LNG has just two trains in operation, out of eight trains, with a combined capacity of 22.5 million mt/year. Both projects, which account for the bulk of Indonesia's LNG exports, have grappled with declining output in mature fields and the lack of new upstream projects and discoveries.

Early estimates showed that as many as a dozen cargoes could be impacted, but LNG producers have so far not specified the exact number of deferrals in their communications with customers, sources with importers of Indonesian LNG said.

Most of the LNG cargoes impacted are from Bontang LNG, estimated at around two to three cargoes for the remainder of 2021 and up to seven in the first half of 2022, while around three Tangguh cargoes are at risk of deferrals for 2021, sources said.

The uncertainty over gas supply has spilled over to negotiations over the annual delivery program between Tangguh LNG's partners and offtakers for 2022, with at least one offtaker saying it was facing difficulty in nailing down volumes for 2022.

Upstream issues

In East Kalimantan, the Merakes offshore field that provides gas to Bontang LNG is facing issues. Italy's oil and gas company Eni is the operator of the East Sepingan Prpduction Sharing Contract, where Merakes is sited.

"One of the Merakes wells recently suffered an unexpected production halt, which is affecting the current field production," an Eni spokesperson said in a statement to Platts.

"The other four wells are operating regularly, with a current production of over 360 million cubic feet/day," the statement said, adding that an investigation was ongoing into the cause of the issue and remedial actions were being carried out to re-activate the well. The five wells were intended to guarantee production of 450 million cubic feet/day, Eni said in an April statement announcing the start-up of the Merakes field development.

IHS Markit's principal analyst Johan Utama said upstream issues at Merakes have curtailed feed gas to Bontang LNG, and between two and five cargoes from Tangguh could face delays in November due to multiple disruptions.

"Although this latest issue is expected to be quickly resolved, disruptions [to Tangguh output] have been frequent in recent years, with three unplanned shutdowns at Train 2 alone in two years," Utama said.

"COVID-19 has a hand in it, as getting people and equipment to the site in Papua have been difficult due to pandemic restrictions and supply chain issues - Tangguh Train 3 initially slated to start up in 2021 has been pushed back several times and is now projected for mid-2022," Utama added.

Multiple delays in the Tangguh LNG Train 3 expansion have prevented new feedgas supply from coming onstream to offset declining fields.

Indonesia is expected to remain on track to export 1,600 million cu m/month through this winter, roughly stable with year-ago levels, said Jeff Moore, manager for Asian LNG analytics at S&P Global Platts.

"If there are extended outages there is some downside risk to this expectation, which would tighten up the Pacific Basin and volumes would likely need to be drawn on from outside the region," Moore suggested.