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."