Chevron May Pump Gas From Indonesia's Deep Sea Areas By 2016

By Leony Aurora

May 29 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, may start pumping natural gas from Indonesia's deep-sea areas by 2016, boosting exports as Asian buyers pay near-record prices for the cleaner-burning fuel.

Fields in the Ganal block off Borneo island could produce ``close to'' 1 billion cubic feet a day at their peak, said Steve Green, head Chevron's Indonesian and Philippine operations. That's 13 percent of current output in Indonesia, the world's third-largest liquefied natural gas exporter.

The project would more than double Chevron's gas output in Indonesia and boost supply to an LNG plant at Bontang in East Kalimantan province, helping stem a decline in exports. State- run oil company PT Pertamina estimates LNG shipments to a group of Japanese utilities, known as Western buyers, will fall by 75 percent to 3 million tons a year after current contracts expire by March 2011 as output from some existing fields drop.

``There's a very high interest by Japanese, Korean and other new LNG buyers around the world,'' Green, managing director of Chevron IndoAsia Business Unit, said in an interview at his office in Jakarta. ``It's a great opportunity for Indonesia to develop the project. That's why Chevron is interested.''

Chevron produced 606 million cubic feet a day in Indonesia last year, including output from areas that it doesn't operate, according to its annual report. The company's share of gas production in Indonesia was 277 million cubic feet a day, or 5.5 percent of its global output.

Regulatory Approval

Chevron is awaiting approval from Indonesia's oil and gas regulator BPMigas for a development plan submitted last year, Green said. Based on preliminary estimates, it will take six to eight years to develop the fields before they can start pumping gas, he said.

The project's cost will be calculated after the development plan is approved, Green said. He declined to give estimates of the gas reserves at the fields, citing company policy.

Chevron owns 80 percent stake in Ganal area and Eni SpA holds the rest.

The cost of LNG imports by Asian buyers have doubled in the last three years as the price of crude surged. Oil has more than doubled in a year to $130.25 a barrel on the New York Mercantile Exchange today.

Drilling costs have surged as explorers intensify the search for oil and gas after crude prices reach records. The average first-quarter daily rent for deepwater floating rigs operated by Transocean Inc., the world's largest offshore oil driller, jumped 20 percent to $284,100 compared with a year earlier.

`Unique Timing'

``Demand for energy is at an all time high,'' Green said. ``This project enjoys a unique timing in the industry when the market for a project of this magnitude exists.''

Chevron, the biggest crude producer in Indonesia, is also developing a new oil field in Sumatra and investing in existing projects to slow a decline in production, he said.

The company plans to start production at the North Duri field in central Sumatra by end this year, Green said. Chevron may spend $1.3 billion to develop the area, which may produce 65,000 barrels a day at its peak in 2012.

Chevron's concessions in Sumatra, including Minas and Duri areas, pumped 425,000 barrels of oil a day last year, nearly half of Indonesia production.

To contact the reporter on this story: Leony Aurora in Jakarta at laurora@bloomberg.net