Petronas eyes Natuna D-Alpha gas project

JAKARTA (JP): Uncertainty over the development of the Natuna D-Alpha gas project may soon end, with Malaysian state oil and gas company Petronas reportedly eying gas supplies from the gas field in the South China Sea.

Indonesian state oil and gas company Pertamina's director for production sharing contracts, Iin Arifin Takhyan, said on Tuesday the state company was now in discussions with Petronas over a contract for gas from the Natuna D-Alpha block.

"They (Petronas) have approached us and we had an informal discussion," he said.

Petronas and Pertamina, he said, were now discussing a follow- up to the meeting, though he added that Petronas was in no hurry to close a deal because it would not need the Natuna gas before 2010.

The Natuna D-Alpha project, located east of Natuna island, is also known as the East Natuna project to differentiate it from the gas projects west of Natuna island owned by American oil and gas company Conoco Inc., British firm Premier Oil and Canadian firm Gulf Indonesia Resources.

The D-Alpha block is 74 percent owned by ExxonMobil Oil Indonesia Inc., the subsidiary of American company ExxonMobil Corp. Pertamina holds the remaining 26 percent of the block.

The project has long been delayed because Pertamina has been unable to find a market for the block's gas reserves.

Iin said East Natuna's gas field was estimated to hold total reserves of 140 trillion cubic feet (tcf), though some 72 percent of the reserves contain carbon dioxide.

"Without the carbon dioxide the gas reserves should be around 45 tcf, which is still huge," he said.

He said the high carbon dioxide content made the development of the field expensive. "We cannot dump the carbon dioxide so we have to reinject it, which is why it's so costly."

The huge development cost, estimated at US$40 billion, calls for a market capable of generating an adequate return. Pertamina's decision to shelve the project was mainly due to the absence a buyer. "It was just a matter of economical feasibility," Iin said.

He said because of the high investment costs, the government had given the owners of the D-Alpha block the right to retain 40 percent of the block's future gas output

Under standard production sharing contracts, contractors keep 30 percent of gas output, with the remaining 70 percent going to the government.

Iin said demand for gas in Malaysia was huge, but it was too early to estimate how much gas Petronas wanted to buy from Natuna D-Alpha.

When questioned about what price Pertamina would offer for the gas, Arifin said it depended on the quantity of gas Petronas intended to buy.

He said Petronas had asked for the price of gas from the block be pegged to the market price of high sulfur fuel oil.

Pertamina, for its part, wants to secure a long-term contract with Petronas that runs at least 20 years, he said.

He added that the contract would include a ceiling and a floor price for the gas. "It is normal in a contract to protect the interests of the buyers and the sellers," he explained.

At present, he said, Petronas was focusing on negotiations to sell the gas from the West Natuna gas fields operated by British- based Premier Oil.

Petronas and Pertamina signed a sale and purchase contract in late March allowing Pertamina's production sharing contractor, Conoco Inc. of the United States, to supply gas from West Natuna to Malaysia.

Under the deal, Petronas will purchase up to 250 million standard cubic feet per day of natural gas for 20 years starting from July next year. (bkm)