Chevron Corp. (CVX) said Thursday it has awarded engineering contracts for a deepwater natural gas project that will be its biggest single investment in Indonesia and increase its exposure to booming demand in North Asia for cleaner-burning fuels.
Chevron Corp. (CVX) said Thursday it has awarded engineering contracts
for a deepwater natural gas project that will be its biggest single investment
in
Indonesia
and
increase its exposure to booming demand in
North Asia
for
cleaner-burning fuels.
The move shows how Big Oil's appetite for deepwater oil and gas production
remains strong, despite the major oil spill at the BP PLC-operated Macondo well
in the Gulf of Mexico this year. Chevron said the Gendalo-Gehem project will
tap gas fields beneath six thousand feet of water in the
Makassar
Strait
offshore
East Kalimantan
province.
Separately, Chevron has agreed to sell an 18% stake in the Gendalo-Gehem
project to China Petrochemical Corp., known as Sinopec. The agreement, signed
in
Singapore
on
Nov. 30, is conditional on regulatory approvals in
Indonesia
and
China
.
Chevron said Gendalo-Gehem will likely produce around 1.1 billion cubic feet of
natural gas and 31,000 barrels of condensate-a petroleum liquid-a day at its
peak from four fields.
Around 75% of the gas from the project would be converted to liquefied natural
gas at state-owned PT Pertamina's existing Bontang LNG plant in
East
Kalimantan
for export, with the remaining output sold to the
domestic market, said Stephen Green, Chevron's managing director in
Indonesia
and
the
Philippines
.
Chevron earlier pegged the cost of the Gendalo-Gehem project at between $6
billion and $8 billion in a development plan submitted to the Indonesian
government. This would dwarf its previous investments in the country, which are
concentrated in production of crude oil and geothermal energy.
The engineering work will allow Chevron to "narrow that band" as well
as the timetable for the project to begin operations, Green told Dow Jones
Newswires in an interview.
Chevron said it has awarded contracts for the engineering and design of
Gendalo-Gehem's key infrastructure, including pipelines and floating production
units, to
France
's
Technip S.A. (TEC.FR),
Australia
's
WorleyParsons Ltd. (WOR.AU) and
Indonesia
's PT
Singgar Mulia.
Chevron is accelerating the development of Asian natural-gas projects such as
Gendalo-Gehem to gain exposure to developing economies such as
China
and
India
,
which want to lower their dependence on coal and crude oil.
Bringing in Sinopec as a partner will help Chevron get more access to
China
's
energy sector. Sinopec, which declined to comment on the deal, is
China
's
second-largest oil and gas producer by capacity after China National Petroleum
Corp. and is building several LNG receiving terminals on
China
's
eastern coast.
The International Energy Agency predicts
China
's gas
consumption will more than quadruple between 2008 and 2035. Much of this demand
will be met by overseas projects-the IEA forecasts China's annual natural-gas
imports will grow from just 176 billion cubic feet in 2008 to more than seven
trillion cubic feet in 2035, accounting for 40% of the growth in global trade.
Over the past year, Chevron has begun construction of the A$43 billion Gorgon
gas development in
Australia
and
signed several gas sales deals for another large LNG project in the country,
Wheatstone. It is also pushing ahead with the $3.1 billion Platong Gas II
project in the
Gulf
of
Thailand
.
Of Chevron's more than 150 trillion cubic feet of natural gas reserves
globally, Green said nearly half was in the Asian-Pacific region.
Projects like Gendalo-Gehem are helping to restore
Indonesia
's
status as a major oil and gas producer after the country suspended its
membership in the Organization of Petroleum Exporting Countries.
Indonesia
's
problems reflect supply failing to keep up with demand in recent years, as
fields age and little new investment arrives. Around 90% of
Indonesia
's oil
fields are mature.
Compounding matters are tax and regulatory changes that have affected the
ability of investors in oil and gas projects like Chevron to recover their
costs.
Green said one of Chevron's challenges will be making the Indonesian government
and approvals agencies comfortable with the scale of the Gendalo-Gehem project,
the magnitude of the investment, and the length of time it will take for it to
deliver revenue.
First gas production isn't likely before the second half of the decade. Engineering
and design work will take around two years before Chevron will decide whether
to start building the project. Construction will last several years, although
the timetable won't be as long as some of Chevron's other big gas projects in
the region, like Gorgon, as Gendalo-Gehem will use existing infrastructure,
such as onshore pipelines and the Bontang LNG terminal.
The Indonesian government has also sought reassurance on the safety of
producing natural gas and liquids at vast depths offshore, given the Macondo
well disaster in the
Gulf of Mexico
, he said.
"We believe that our approach to deepwater is sound and that we can
successfully complete and operate this project, along with many others
worldwide, with due respect to the environmental and safety concerns,"
Green said.
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