Japanese consortium to remain in talks on Natuna Gas stake

Japanese consortium to remain in talks on Natuna Gas stake

TOKYO (Dow Jones): A Japanese consortium of 11 companies will continue with talks aimed at acquiring a 13 percent stake in Indonesia's giant Natuna natural gas field, despite an announcement Wednesday that exploration on the field will be postponed, officials at the consortium told Dow Jones Newswires yesterday.

"As the start-up of any liquefied natural gas project is essentially based on the market situation and buyers' commitment, we aren't surprised by the announcement of a postponement amid the region's economic turmoil," said an official with Japan's Indonesia Petroleum Ltd., or Inpex, the company leading the Japanese consortium.

The consortium partners confirmed that they are still interested in taking a stake in the project, both as a means to secure LNG supplies beyond 2010 and to secure engineering and production-sharing contracts for the $40 billion field development.

"Even though the world LNG market is heading into a supply glut given the financial difficulties in Asian countries, the basic trend of shifting to cleaner energy sources such as natural gas won't change," said the Inpex official.

As reported, Natuna project chairman Faisal Abda'oe, following a meeting with President B.J. Habibie, announced Wednesday that the Indonesian government had decided to postpone gas exploration at Natuna.

Exxon Corp. (XON) is operator of the field, which has gas reserves estimated at 46 trillion-cubic-feet and is in the development stage. Exxon holds a 50 percent equity stake in the project, Mobil Corp. (MOB) holds 26 percent, while Indonesian state oil and gas company Pertamina holds 24 percent.

Abda'oe said Wednesday the decision was prompted both by the economic downturn in Thailand - which was intended as the main buyer of Natuna gas - and oversupply in the world market.

Thailand signed a memorandum of understanding with Pertamina for purchase via pipeline of 500 million cubic feet a day of Natuna gas starting in 2005, doubling to 1.0 billion cubic feet a day in 2008.

"If possible, if the prospects are good in the future, maybe it could be restarted in 2007," Abdaoe said.

"Restarting in 2007 sounds no problem (from the Japanese side)," said a trading house official at one of the Japanese consortium members.

The Natuna development has been dogged by controversy, since the high carbon-dioxide content of the gas means it requires an expensive cleaning process. That in turn has led to a struggle to attract foreign buyers and financing.

President Habibie was a major supporter of the project while he was Research and Technology Minister, seeing Natuna as a solution to Indonesia's long-term fuel needs as the country's crude oil production declines and imports become more expensive.

In a related development, analysts in Melbourne said Australian would-be liquefied natural gas producers can take no heart from Indonesia's decision Thursday to drastically delay its Natuna LNG development.

Analysts said the delay underscores the terrible state of the market.

Indeed, with Asia's LNG demand growth set to tumble in the wake of the region's economic crisis, some analysts believe none of Australia's proposed green fields developments will get up before 2010. And even a brown field expansion at the country's existing North West Shelf LNG project could be put back.

While the decision to delay Natuna cuts out from the market another potential competitor for the Australian projects, Merrill Lynch & Co. energy analyst Stuart Smith said that rather than opening up an opportunity for Australian projects, the delay highlights the current tough market conditions.

"It's indicative of a pretty weak LNG market," Smith said.

"Not doing (Natuna) doesn't open an opportunity (for Australian producers) if there's no market," said Paul Ashby, energy analyst at ABN Amro.

"I certainly don't believe there will be any green field project in Australia...this side of 2010," Ashby said.

The list of proposed new LNG projects in Australia is headed by the A$9 billion Gorgon project, situated adjacent to the North West Shelf operation offshore of Western Australia. A joint venture comprising Chevron Corp. (CHV), Texaco Inc. (TX), Mobil, and the Royal/Dutch Shell Group (RD), Gorgon is targeted to be in production by 2003, but needs to bed down some customers before the partners will commit to it.

Then there's the Broken Hill Proprietary Co. (BHP) Philips Petroleum (P) Bayu-Undan joint venture, in the Timor Sea. First production had been expected in 2003, but has now been put back to perhaps 2005 or 2006.

Finally Shell and Australia's Woodside Petroleum Ltd. (A.WPL) have plans to build an LNG plant at Darwin, in the Northern Territory, with first production targeted for 2004.