Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Sept. 4 -- Indonesia is conducting talks with Inpex Holdings Inc. aimed at having the Japanese firm construct the world's first offshore LNG terminal as part of its development of the Masela offshore gas field in the Timor Sea near the maritime border with Australia.

Indonesian officials, who are making construction of the terminal a condition for the development project, said development could begin as early as November, assuming that a final agreement is reached.

Discussion are said to be complicated by the fact that Indonesia, Japan's main supplier of LNG, is taking a hard line.

Inpex, which holds a 100% stake in the block, had hoped to lay a pipeline from the field to the northern coast of Australia and then use an LNG terminal there to export the gas.

However, Indonesia's Ministry of Energy and Mineral Resources instead proposed construction of the offshore terminal due to what it claims are the difficulties involved in laying pipe through a deep trench.