REFILE-EXCLUSIVE-UPDATE 1-Indonesia 2013 LNG exports to drop 13.8 pct

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By Fergus Jensen

JAKARTA Dec 6 (Reuters) - Indonesia's liquefied natural gas (LNG) exports are expected to drop 13.8 percent in 2013 to 274 cargoes as its production declines and it sets aside more gas for domestic use, a source at its new interim oil and gas regulator (SKMigas) said.

Indonesia, the world's third-largest LNG exporter, is increasing the use of natural gas at home to avoid costly imports and to feed rising demand. Supplies have also declined from its ageing fields.

"The problem is in the reservoirs. The capacity of the reservoirs is no longer as was expected," the SKMigas source, who declined to be identified, said on Thursday.

Indonesia plans to retain gas equivalent to 32 cargoes next year compared with 14 in 2012, the source said, to fuel the growing need for domestic power in Southeast Asia's largest economy.

The expected cargo number for next year will be down 35.8 percent from the 427 exported in 2010, despite surging Asian demand for the fuel.

Earlier, Deputy Energy Minister Rudi Rubiandini said Indonesia's gas allocation for domestic use would continue to increase from 2014 to 2018, when several supply contracts with international buyers such as Sempra Energy and the Korea Gas Corporation are due to expire.

The southeast Asian nation has struggled to meet its contractual commitments to traditional buyers such as Japan, South Korea and Taiwan, often agreed more than a decade ago.

Its declining production forecast comes after a fire last month at the Tannguh LNG plant operated by BP closed one of its two LNG trains.

Customer South Korea reported that around 120,000 tonnes of LNG shipments had been cancelled as a result of the closure, with production expected to resume in mid-December.

A planned third Tangguh LNG train, which still requires a Final Investment Decision (FID) from the British oil company, is expected to add 3.8 million tonnes per annum (mtpa) liquefaction capacity to Tangguh, 40 percent of which will be set aside for Indonesian state power company PT PLN.

Price negotiations continue with Sempra Energy involving a project that will turn the ageing Arun LNG plant in Aceh province into a receiving and regasification terminal, he said.

LNG is a super-cooled form of natural gas that can be shipped long distances without the need for a pipeline. Demand for it is strong in Asian markets, where it fetches a higher price.

Indonesian LNG is shipped to Japan, Korea, the United States and China. (Editing by Clarence Fernandez and Jane Baird)