Indonesia is determined to get a market price for LNG exported from the Tangguh project to China's CNOOC, a senior official with upstream regulator SKK Migas said Monday.

"The new price cannot be below the market price. It has to be aligned with the market price," Widyawan Prawiraatmaja, SKK Migas' deputy chief for commercial control said, adding that assuming the Japan Crude Cocktail price is $100/barrel, the LNG price should be around $14/MMBtu.

CNOOC currently pays $3.50/MMBtu for Tangguh LNG, which is one of the lowest prices paid for Indonesian LNG.

Indonesia began price renegotiations with CNOOC in early May and energy minister Jero Wacik said then that the renegotiations would be completed within two months.

"The negotiation is taking time, but we expect to complete it as soon as possible," Prawiraatmaja said. He added that there were some disagreements between Indonesia and CNOOC on when the new price should take effect.

Indonesia wants the new price to be effective retroactively from January 1, 2013, but CNOOC wants the new price to take effect in January 2014, he said.

"We are still discussing the price and the effectiveness of the contract," he said.

This is the second time Indonesia has asked for a price review though the LNG contract states that the government can review the price of Tangguh LNG every four years if oil prices rise significantly.

The last time the LNG price was reviewed was in 2006, when Tangguh operator BP Indonesia and CNOOC amended their sales and purchase agreements by raising the ceiling crude oil price on the Tangguh contract to $38/barrel from the $25/b that was signed in 2002.

This allowed the average LNG price to rise to $3.50/MMBtu from $2.60/MMBtu on an FOB basis.

The Tangguh LNG project in Bintuni Bay at Indonesia's far eastern Papua province, comprises two trains with a total capacity of 7.6 million mt/year. The project is based on 14.4 Tcf of proven gas reserves in three neighboring production sharing contracts.

BP has a 37.16% interest in Tangguh. The other partners are CNOOC (13.9%), MI Berau BV (16.3%), Nippon Oil Exploration (12.23%), KG Companies (10%), LNG Japan (7.35%) and Talisman (3.06%).

Tangguh has five long-term supply contracts. They are with CNOOC for 2.6 million mt/year over 25 years; South Korea's Posco for 550,000 mt/year for 20 years; South Korea's SK E&S for 600,000 mt/year for 20 years; Sempra for 3.7 million mt/year for 20 years; and Japan's Tohoku Electric Power for 125,000 mt/year for 15 years.

Posco and SK E&S buy Tangguh LNG at an average price of $3.36/MMBtu and $3.50/MMBtu, respectively.

The Indonesian government in December gave BP the go-ahead for a $12 billion expansion plan for Tangguh, which would involve adding a third train, with a capacity of 3.8 million mt/year, at the plant. BP is looking to sell output from the third train to buyers in Japan and South Korea.