Donggi gas project eyes entry of new investor: Report

Indonesia's proposed Donggi gas project could see the entry of U.S.-based Marathon Oil Corp. or Japan's Mitsui & Co. by July 2004 as an investor, Pudjo Suwarno, vice president of gas marketing at PT Exspan Nusantara, a unit of Medco Energi International, was quoted by Dow Jones Monday.

The involvement of a foreign investor - the project's third - is critical for the advancement of the Donggi gas project, without which the gas produced could only be marketed domestically, said Pudjo.

Medco currently has a minority 25% stake in the project, led by Indonesia's state-owned oil and gas company Pertamina.

Marathon and Mitsui independently approached the project's developers for a 15% stake in the project, said Pudjo of negotiations that have dragged on for more than a year.

Last year, Indonesia signed a preliminary deal with Marathon to sell liquefied natural gas from Donggi to Mexico and the U.S. West Coast.

Mitsui, on the other hand, is interested in developing gas-to-liquid technology or the production of dimethyl ether, or DME, for use as an alternative fuel in Japan.

Located in Central Sulawesi, the project, which involves gas production and the possible construction of an LNG terminal, will likely take off upon the successful completion of the Tangguh gas project in the Indonesian province of Papua, possibly after 2007.

Gas reserves around the Donggi project, from two blocks - Donggi and Senoro - are estimated at 8 trillion cubic feet, enough to build at least a two-production-train gas liquefaction plant, Pudjo said.

He said the earliest possible timeframe for the completion of the Donggi LNG project is 2010.

Fifty percent of Donggi gas production is intended for sale to Indonesia's domestic market, while the remainder will be exported.

If all goes as planned, Donggi will be able to produce 400 million cubic feet a day of gas for the domestic market, and the same quantity - equivalent to 3.5 million metric tons a year of LNG - for the export market, Pudjo said.

Declining gas production in Indonesia's restive Aceh province will diminish LNG exports from its Arun field as soon as 2005, Pudjo said.

New LNG production from the proposed Donggi project and Tangguh project, as well as the likely addition of a ninth LNG production train at Bontang, East Kalimantan, will more than offset lower production from Aceh.(*)