East Natuna development faces possible negotiation delay
The Jakarta Post
The development of the East Natuna gas block on northern Natuna Island, off Sumatra, may take longer than expected as state-owned company Pertamina, the operator of the gas block, is still working on several issues with its partners.
Pertamina upstream director Syamsu Alam said the company was currently trying to finish drawing up the principal of agreement (PoA) with other contractors working on the block.
Because they need more time for negotiations, they plan to request an extension of the deadline for the PoA, which currently falls on Dec. 10.
'We and our partners will propose a two-year extension of the PoA period,' Syamsu said.
The PoA for the East Natuna field, formerly known as the Natuna D-Alpha block, is seen as an important stage prior to the signing of a production sharing contract (PSC). The PoA was originally signed in 2011, the same year when the PSC for East Natuna was expected to be concluded. However, no progress has been reported to date.
'The issues are very complicated. If the question is whether we are committed, yes we are committed [to developing the block] because this is also aimed at looking after our [territorial] boundaries,' Syamsu said, referring to the East Natuna block, which is one of the country's outermost posts in the South
Even if Pertamina and its partners were granted an extension of the PoA deadline, the block has been tentatively scheduled to start production at the soonest in 2030, he added.
Along with Pertamina, the oil and gas companies involved in the project are US-based ExxonMobil, France's Total SA and Thailand's PTT Exploration and Production (PTT EP).
The East Natuna block has total proven reserves of 46 trillion cubic feet (tcf), making it the largest gas reserve in Asia. However, the gas field has a high carbon dioxide ( CO2 ) level of around 71 percent, which makes development of the block in need of high-end technology and huge investments. As reported earlier, the block needs from US$20 billion to $40 billion in investments.
The project is seen as facing more challenges because of the current weak oil prices.
The Energy and Mineral Resources Ministry's oil and gas director general, IGN Wiratmaja Puja, said the government would assess Pertamina's request and take numerous issues into account.
'East Natuna is a special block, as it has big reserves and high CO2 content. With current technology and prices, the project is not economical,' Wiratmaja said, adding that the block still has a long way to go before production.
He said that the project would only be economically developed when the price of oil reached more than $100 per barrel.
Due to an ongoing global supply glut following the success of shale oil development in the US, world oil prices are now less than half of last year's level.
The benchmark Brent crude oil was still at the $45 per barrel level on Thursday, according to figures from Bloomberg. Meanwhile, another benchmark, the West Texas Intermediate, has made no significant move from the $42 per barrel level.
Despite awaiting clarity on the East Natuna development project, Wiratmaja said that the block would likely be developed under a pipeline scheme instead of a liquefied natural gas (LNG) plant scheme.
'Pipelines will likely be more economical as the block is located near to existing an pipeline network. We can also direct the gas to West Kalimantan, where bauxite mining is in progress,' Wiratmaja said.
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