Indonesia's PT Medco Energi International Tbk has signed a head of agreement to supply a total of 2 million tonnes per year of LNG to two Japanese buyers, a company official revealed recently.

The agreement will see Medco will sell 1 million tonnes of LNG from the Donggi-Senoro LNG plant on Sulawesi island to both Chubu Electric Power Co. and Kansai Electric, according to reports.

August last year saw state oil firm Pertamina, Medco and Japan's Mitsubishi Corp. sign a natural gas supply agreement for the LNG plant in Sulawesi island. The three firms signed an agreement in August 2007 to build the $1.4bn Donggi-Senoro LNG plant, which will have a capacity of 2 million tonnes per year.

The plant is expected to be operational by 2012 or 2013, with Medco expecting the government to approve the LNG plant by the end of this month - warning the project would be delayed if approval was not forthcoming.

The plant should give LNG production in Indonesia, the world's third-biggest LNG exporter after Qatar and Malaysia, a much needed boost as the country struggles to juggle exports and local needs.

The outlook for Indonesia's LNG exports has been put in doubt by plans to divert more of its production to domestic use, at a time when its oil & gas output has been under pressure from ageing fields and delays in bringing new production on-stream.

The Southeast Asian country has failed to meet its contractual commitments to traditional markets such as Japan, South Korea and Taiwan due to a slump in production. Indonesia reportedly has far more gas than oil, but faces limited supplies due to long-term LNG export commitments, which it is believed to be reviewing.

The country is thought to have around 182 trillion cubic feet of natural gas reserves.