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.