Natuna gas project must await demand

Natuna gas project must await demand

NEW YORK (Dow Jones): Exxon Corp. said Thursday that exploration on Indonesia's Natuna gas field should wait until the market is better able to absorb more liquefied natural gas.

The Indonesian government Wednesday announced it would postpone exploration on the giant field, which Exxon operates, because of the economic crisis in Thailand and oversupply of liquefied natural gas in the world market.

The Natuna field, which is in the development stage, is in the Natuna Sea, about 700 miles north of Jakarta. It was discovered in 1973 and has gas reserves estimated at 45 trillion cubic feet.

Exxon has a 50 percent stake in the project. Mobil Corp. holds 26 percent and Pertamina, the Indonesian energy company, has 24 percent.

Production was to begin sometime between 2003 and 2007. Now, the Indonesian government says exploration may restart by 2007.

Exxon spokesman Ed Burwell said the company will wait until the market needs more LNG. Until it can achieve firm sales agreements, the project pace will "remain flexible," Burwell said.

"We're prepared to proceed as soon as the gas market's developments suggest it is appropriate to do so," he said. Mobil spokeswoman Sharon Dey said she couldn't immediately comment on the company's plans for continued involvement at Natuna.

Palavinder Singh, a consultant with Arthur D. Little's Asian energy practice says Wednesday's announcement doesn't surprise him and shouldn't surprise most people.

Singh said no one thought Natuna was going to produce gas before 2007, so they didn't factor it into their supply scenarios.

"Others have not taken Natuna as a competitive LNG supply source. This is nothing more than just declaration of what people have already taken into consideration. They've already discounted the fact that Natuna's not going get there (on time)," Singh said.

Asia is the world's largest importer of LNG, with Japan consuming 62 percent of total LNG supply. Thailand was supposed to have been the main buyer of Natuna gas.

Gas from Natuna was to have been converted to LNG and shipped via a 1,000-mile pipeline to Thailand.

But the Asian financial crisis and subsequent economic slowdown has reduced demand throughout the region and in Thailand. It has created surpluses in the major LNG exporting countries of Indonesia, Malaysia, Algeria, Australia and United Arab Emirates.

The Petroleum Authority of Thailand had signed a memorandum of understanding with Indonesia's Pertamina to buy gas from Natuna at an initial rate of 500 million cubic feet per day starting in 2003 and increasing to 1 billion cubic feet per day beginning in 2007, according to the U.S. Energy Information Association.

In November 1997, the deal's start was delayed until 2007, according to the EIA.