Tapping Natuna gas
Tapping Natuna gas
Fourteen years after Esso Natuna Inc., the Indonesian
subsidiary of Exxon Corp., obtained a production-sharing contract
from Pertamina for the development of the Natuna D-Alpha block,
the American contractor is about to develop what will be its
biggest natural gas bonanza in the world. Some loose ends have
yet to be tied up, despite the conclusion of a memorandum of
understanding with the state oil company on Wednesday, before a
final agreement is concluded in January. But the signing of the
preliminary deal, which was witnessed by one American and eleven
Indonesian ministers, indicates the strong commitments on the
part of both parties to go ahead with the US$35 billion project.
The Natuna gas field, located 225 kilometers northeast of
Natuna island in the South China Sea, has been on and off the
drawing board for nearly 10 years. It was initially assessed as
commercially unviable because its recoverable hydrocarbon gas
reserves, estimated at more than 160 trillion cubic feet, carry a
high carbon-dioxide content. But the project was later revived
after the development of technology that is capable of safely
disposing of the carbon dioxide and other impurities.
However, negotiations for the project, lasting for nearly 10
years, have not been easy. They were called off completely in
July, 1993, after a deadlock regarding financing, tax and profit-
sharing, but were resumed three months later.
Indeed, negotiations for a natural gas development project
that involves a liquefaction plant are always complex; let alone
for such a huge project as the Natuna field. Different from crude
oil, natural gas cannot be stored. Once it is produced and
transported it must immediately be delivered to buyers. Neither
does it have a spot market. Hence, negotiations involve both
complex calculations of financing requirements and a long-term
pricing formula, as well as potential buyers.
The sheer size of the Natuna gas project adds to the
complexity. Though Indonesia, currently the world's largest LNG
exporter, is well experienced in gas liquefaction, since 1977 --
there are now two LNG plants in both Aceh and East Kalimantan, --
it has never handled such a huge gas development project.
Several indicators of the size and complexity of the Natuna
project: It will have an annual production capacity of 35 million
tons, much higher than the 24 million tons currently produced by
the two LNG plants, and at least 18 offshore structures and
almost 1,000 kilometers of pipelines, which will require millions
of tons of structural steel, have to be constructed.
Given the complex designing, engineering and civil work that
has yet to be done, it is estimated that the Natuna project will
take about 10 years to complete. That, we think, makes it even
more imperative for both Pertamina and Exxon to tie up the
remaining loose ends as soon as possible so that the final
agreement can be signed in January as scheduled.
Obviously, the project will be greatly beneficial to both
parties in view of the steady, steep rise in the demand for
natural gas -- due to its clean-burning quality -- in Asia.
Energy analysts recently project the LNG demand in Asia to double
within the next 15 years from the 50 million tons a year now.
Indonesia also badly needs the new gas development venture to
earn more foreign exchange because its exportable oil surplus has
been decreasing due to the steeply rising domestic demand. And
the new LNG capacity is required to meet additional demands from
buyers in Japan, South Korea and Taiwan, which together now take
about 24 million tons a year. Moreover, the gas reserves in Aceh
and East Kalimantan are estimated to deplete within the next 15
to 17 years.