Natuna boosted by Japan talks, but doubts remain

Natuna boosted by Japan talks, but doubts remain

SINGAPORE (Reuter): Japanese involvement in Indonesia's Natuna
gas field would be a major boost for the beleaguered US$40
billion project, industry sources and analysts said yesterday.

But it was unlikely to signal that liquefied natural gas (LNG)
would be Natuna's first marketing option, they said.

On Wednesday, a consortium of Japanese companies said it
expected to agree with Indonesia by the end of the year on taking
a 13-percent stake in the gas project.

Japan is the world's biggest importer of LNG and Natuna is one
of the world's biggest gas fields. The two would seem to fit
together and often Japanese companies buy a stake in a gas field
as a precursor to buying its gas.

But industry sources said an LNG project would not support
Natuna its early years of production in the middle of the next
decade.

Potential buyers were looking at other rival projects in
Indonesia, the Middle East and on Australia's North West Shelf,
because they would be able to produce cheaper LNG.

So Natuna has had to seek other gas markets and was looking at
building a 1,400 kilometer (875 mile) natural gas pipeline to
Jakarta to serve power stations in Java.

That means the Japanese would have to take a long-term view on
the project and hope that the returns on selling gas by pipeline
to the domestic market would produce returns to bring down the
development cost of an LNG plant later.

"The Japanese might take a stake in Natuna, but not for the
potential LNG. They might take a stake and hope that down the
road, perhaps in 15 years from now, they might get some LNG," an
industry analysts said. He declined to be identified.

"It's an awfully big field. It has recoverable reserves of 46
trillion cubic feet. That could meet Japanese needs through the
middle of the next century. Japanese are always long term
thinkers," he said.

The Natuna field is a giant deep-water project being developed
by a consortium of Exxon Corp. with 50 percent, Mobil Corp. with
26 percent and Indonesia's state-owned oil company Pertamina with
24 percent.

The Japanese consortium, including eight trading houses and
three exploration companies, is negotiating for a 13 percent
stake.

Pertamina said last December it expected an agreement with the
Japanese by early in 1997. But the talks slipped to the back
burner, prompting market concern that the Japanese had pulled
out.

On Wednesday, members of the consortium said they expected
agreement by the end of this year, based on terms achieved by
Mobil when it farmed into the project in 1996.

Mobil paid nothing for its stake but agreed to pay its
proportion of development costs.

Analysts said an investment under similar terms would be very
attractive to Japanese companies, especially as many of them
would hope to gain contracts in engineering to help develop the
project.

"It would also give them an inside track on the project, plus
security of supply over the long term," one analyst said.
"And if you are going to pay nothing for it, why not."