BP to go ahead with $8 bln Indonesia LNG project expansion

* BP leads Tangguh project

* Output to rise by 50 percent

* Building contracts worth almost $3 bln awarded (Recasts, adds BP, regulator comments)

By Osamu Tsukimori and Wilda Asmarini

TOKYO/JAKARTA, July 1 (Reuters) - BP gained final investment approval to an $8 billion expansion of the Tangguh liquefied natural gas (LNG) project in Indonesia on Friday, clearing the way for a third train to start operations in 2020.

BP is going forward with expansion of Tangguh despite announcing it would rein back on spending this year due to weak oil prices. It also approved investment on an Egyptian gas field last week.

The investment will boost annual LNG production capacity at the Tangguh project in Indonesia's West Papua province by 50 percent to 11.4 million tonnes.

Three-quarters of the gas from the new Train 3 will be supplied to Indonesian power utility Perusahaan Listrik Negara , BP said. The rest will go to Japan's Kansai Electric Power Co.

Officials at Indonesia's upstream energy regulator SKKMigas said the project was worth $8 billion, although BP declined to confirm that figure.

"We are finalising details with potential lenders and at this point I'm not able to disclose who they are," Christina Verchere, BP regional president Asia Pacific, told reporters.

In May BP cut its budget for the project to $8-10 billion from $12 billion.

"This final investment decision was made after confirmation with Tangguh production-sharing contractors and is based on commercial considerations," said Indonesian energy minister Sudirman Said.

BP leads the Tangguh project with a 37.16 percent stake. Its partners include MI Berau, China National Offshore Oil Co and a venture between Mitsubishi Corp (LSE: 7035.L - news) and Inpex.

Friday's decision also sealed a $2.43-billion onshore building contract for a consortium led by Tripatra, part of Indonesia's Indika Energy Group, SKKMigas chief Amien Sunaryadi said.

A $448-million offshore contract was awarded to the Indonesian unit of Saipem (LSE: 0NWY.L - news) , he said.

"(These) are the contractors who did the front end engineering designs, so we hope the (results) aren't too different from that," Sunaryadi said.

(Writing by Fergus Jensen; editing by Himani Sarkar and Jason Neely)