Healthy outlook for Asian gas exploration

Healthy outlook for Asian gas exploration

SINGAPORE (Reuters): The outlook for gas exploration in Asia, buoyed by the recent inauguration of the West Natuna Transmission System (WNTS), should remain healthy for the next five years, industry sources said on Tuesday.

Sufficient long-term benefits still exist, despite concerns over harsh production-sharing terms, a current supply overhang and a fall in demand during the Asian economic crisis.

"The economic crisis was just a temporary setback. We continue to see a lot of interest in gas," said Premier Oil Natuna Sea president Robin Allan.

"In the past, gas used to be a forgotten commodity as people concentrated on oil. But with the end of the oil boom, we're now eying more investments in both the exploration and delivery of natural gas."

The wealth of untapped opportunities in the region and rising natural gas demand, spurred by cost and environmental concerns, will prompt international companies to keep up exploration.

Sources said the industry may evolve to the point where smaller investments and shorter-term contracts take precedence over large-scale projects and 20- to 30-year contract lengths.

The US$1.5 billion West Natuna project, which sold its first gas from Indonesia to Singapore on January 3, is an example of the investment flowing into the gas sector.

A joint venture between Indonesian state oil company Pertamina, Conoco Indonesia, Gulf Indonesia Resources and Premier Oil Natuna Sea undertook the construction and operation of the 656-km (410-mile) submarine pipeline system.

The system, which now links Indonesia and Singapore, will fetch Indonesia $1 million a day in revenue for the next 22 years and is a prototype for an eventual Trans-ASEAN (Association of Southeast Asian Nations) gas grid.

Despite the industry's long-term euphoria, there are still some worries to overcome.

The biggest concern, sources said, was gas production terms in Asia, considered uncompetitive on a global basis and not conducive to investment.

Indonesia, one of Asia's biggest producers, has a 65:35 percent gas production sharing split in favor of the government.

These terms, while attractive compared to oil production sharing splits of 85:15, are less favorable compared to mature oil areas such as the UK continental shelf, where the government take varies from 30 to 40 percent.

"It (terms) could be improved because gas is still in its infancy here," said Conoco Indonesia President & General Manager Patrick Meyer.

"There are more risks involved as larger up-front investments are needed because of the giant infrastructure that has to be built."

Indonesian authorities plan to review the country's oil and gas laws later this year, but production-sharing terms are not expected to change.

There was room for the nature of future business deals to evolve, given the risks and concerns surrounding the gas exploration industry, Meyer said.

"The WNTS is a milestone project that demonstrates how risk can be shared so that the basic infrastructure can be built," he added.

"In future, incremental infrastructure will still be built, but it will require smaller investments with reduced risks."

Meyer said this would lead to smaller deals and shorter-term contracts of five to 15 years being negotiated.