46 Tcf of proven reserves in East Natuna, but $10-$15 natgas required to make it economic
ExxonMobil (ticker: XOM) has pulled out of developing the Indonesian East Natuna gas field, after more than 20 years of consideration.
First discovered in 1973, the East Natuna gas field is located in the South China Sea near Indonesia and Malaysia. Estimates have put the total natural gas in place in Natuna around 222 Tcf, and 46 Tcf of proven reserves. For reference, in 2016 the EIA estimated the Marcellus holds about 72.7 Tcf of proven reserves. While the East Natuna field has been known for more than 40 years, it has never been tapped.
High CO2 content means development could cost $40 billion
Located in less than 500 feet of water, one might assume that a gas reservoir with these characteristics would be quickly developed. However, gas in East Natuna has a large amount of carbon dioxide, with about 70% of all gas in the reservoir CO2. This makes development significantly more complex, and expensive. Estimates vary widely, but developing the project could cost up to $40 billion. For reference, this exceeds the total amount of debt offerings from all U.S. and Canadian oil and gas companies this year.
With current contract terms, this would require a gas price of about $10-15/MMBTU, the director general of oil and gas at Indonesia’s energy ministry told Reuters. Current LNG prices in Asia are around $6/MMBTU, meaning the project is significantly too expensive.
Indonesia looking for a development partner
A review of the project has led ExxonMobil to announce it “no longer wishes to continue further discussions or activity” regarding the field according to a spokesperson. Exxon’s partner in the venture, Thailand’s PTT Exploration & Production, also decided to abandon development.
This leaves Indonesia’s NOC, Pertamina, as the only remaining partner looking to develop the field. The massive expense of developing the field means Petramina is currently looking for a partner for assistance. According to Reuters, that partner might even be ExxonMobil. A Reuters source reports that the Indonesian government plans to invite Exxon to discuss the project further, and may offer more incentives for development.
