Inpex Aims to Produce Natural Gas in Indonesia

TOKYO Oct 18, 2006 (Dow Jones Newswires)

Inpex Holdings Inc. (1605.TO) said Wednesday it plans to develop a natural gas field in eastern Indonesia by 2014-2016, which could help resource-poor Japan reduce its reliance on Middle East oil.

Japan's largest energy explorer acquired a 100% stake in the Masela Block in the Timor Sea in November 1998, and discovered a large gas reserve in December 2000, according to its Web site.

The company, partially owned by the Japanese government, estimates that it will be able to produce 3 million metric tons of liquefied natural gas a year from the reserve, a spokesman said.

Inpex has so far test-drilled three wells, and plans to add four more wells in late 2006 or early 2007 to evaluate the reserve in detail, the spokesman said.

"We believe the natural gas market will grow in coming years as demand is expected to increase in countries such as China and the U.S.," he said.

The company has not decided whether it will produce LNG as it is also considering other technologies such as gas-to-liquids, he added.

"LNG is a major candidate, but it's still an option. We will decide based on factors such as costs and how many customers we can find," he said.

He declined to specify investment value, saying it is difficult to give an estimate because the company has not yet decided what technology it will use.

The Nihon Keizai Shimbun reported Wednesday that Inpex will invest about Y500 billion in the gas project.

Inpex plans to sign contracts with Japanese utility companies as well as Asian, European and U.S. firms to buy the gas, the report said. It will also ask major international oil companies to help develop the field.

The plan follows Inpex's announcement earlier this month of a sharp reduction of its stake in Iran's Azadegan oil field from 75% to about 10%.

Japan faces an urgent need to secure a stable source of natural gas in the wake of Russia's threat to halt the Sakhalin-2 energy project. Sakhalin-2 is scheduled to start producing LNG in mid-2008.

At its peak, Sakhalin-2 will produce 9.6 million metric tons of LNG a year, with more than half of it scheduled to be delivered to Japan, according to Japanese buyers.

In Indonesia, there's increasing talk that the country should divert its natural gas exports for domestic use. But analysts say the Masela project carries less risk than Sakhalin-2 for Japan.

"Inpex has worked in Indonesia from its inception (in the 1960s). It has close relationships with the Indonesian government. I think Inpex will develop a few more projects like this in Indonesia in coming years," said Yoshihisa Miyamoto, an analyst with Okasan Securities Co.

Japan imported 1.57 million barrels of crude oil in 2005, with about 90% of it from the Middle East.

Japan also imported about 58.01 million metric tons of LNG in the same year, with 24.6% coming from Indonesia, according to the Ministry of Finance.

Copyright (c) 2006 Dow Jones & Company, Inc.

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