UPDATE 2-Japan eyes stable energy supply with Indonesia pact

(Adds bird flu cooperation)

By George Nishiyama

JAKARTA, Aug 20 (Reuters) - Japan and Indonesia signed a free-trade agreement on Monday that Tokyo hopes will help it secure vital energy supplies from the Southeast Asian nation.

The pact, which is due to take effect early next year, will also eventually get rid of 92 percent of import taxes on bilateral trade. Japan is Indonesia's largest trading partner.

Resource-poor Japan is the world's largest importer of liquefied natural gas (LNG) and Indonesia is its number one supplier, as well as the second-biggest provider of coal to Tokyo and sixth for crude oil.

But Japan faces growing competition for supplies of LNG -- natural gas cooled to liquid form for transport -- from fast-growing markets such as China and India.

The trade deal signed on Monday requires Jakarta provide LNG to Japan even when events such as new regulations force it to cut exports. In return, the pact provides a framework to encourage Japanese investment in energy development projects in Indonesia.

"As for LNG, while efforting to meet domestic needs, we will strengthen our relations with Japan," Indonesian President Susilo Bambang Yudhoyono told a news conference after signing the agreement with visiting Japanese Prime Minister Shinzo Abe.

The two leaders also committed in a joint statement to take part in a new framework to rein in growth of greenhouse gases after the current Kyoto Protocol climate change pact runs out at the end of 2012. Indonesia hosts a new round of U.N. climate change talks in Bali in December.