Indonesia expects to begin renegotiating the price of Tangguh LNG with China's CNOOC this month with the aim of raising the price from $3.50/MMBtu currently to $5-$6/MMBtu, a senior official said Thursday.

"We expect CNOOC will be willing to raise the crude price ceiling ... How much the ceiling will rise will depend on the renegotiations," Rudi Rubiandini, operations deputy chief at upstream regulator BPMigas, said.

Domestic consumers can pay up to $5-$6/MMBtu for gas, so the export price for Tangguh LNG should at least match that level, Rubiandini added.

Indonesia has been seeking to renegotiate with CNOOC to increase the benchmark crude price to which Tangguh LNG prices are linked.

The Indonesian government and CNOOC renegotiated the price of Tangguh LNG in 2006, when they raised the crude price ceiling to $38/barrel from $25/b in their original contract inked in 2002. This allowed the LNG price to increase to an average $3.35/MMBtu FOB, from $2.60/MMBtu earlier.

The contract with CNOOC allows the Indonesian government to review the price every four years if oil prices rise significantly. The Tangguh LNG project in Bintuni Bay of Indonesia's far eastern Papua province comprises of two trains with a total capacity of 7.6 million mt/year.

There are five long-term supply contracts for Tangguh LNG -- CNOOC takes 2.6 million mt/year, South Korean companies Posco and K-Power take 550,000 mt/year and 600,000 mt/year respectively, US' Sempra Energy takes 3.7 million mt/year, and Japan's Tohoku Electric Power lifts 125,000 mt/year.

CNOOC, Posco and K-Power buy Tangguh LNG at an average price of $3.35/MMBtu, $3.36/MMBtu and $3.50/MMBtu, respectively, on an FOB basis. Pricing details for Sempra and Tohoku are not known.

BP has a 37.16% operating interest in Tangguh LNG. The other partners are CNOOC (13.90%), Japanese joint venture MI Berau (16.30%), Japan's Nippon Oil Exploration (12.23%), Japanese venture KG Companies (10%), LNG Japan (7.35%) and Canada's Talisman (3.06%). Under the production sharing contract, only 30% of the project's revenue goes to the partners, while the remaining 70% goes to the Indonesian government.