EMAIL DETAILS

I am planning on going to California and spend time with Jim Haynes
and Bob Denham in July.
I think this is an excellent issue to raise our product and discuss
ways to manage and mitigate political risk. MPA

Chevron Bets on $30 Billion Volcanoes Beneath Rainforest (2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Stuart Biggs


June 15 (Bloomberg) -- Chevron Corp. drilled 84 wells to a depth of
two miles beneath the Indonesian rainforest to tap steam, not oil and
gas, that’s trapped in the world’s richest store of volcanic energy.

The oil driller’s geothermal plant, set among wild orchids and bamboo
trees, uses 315 degree Celsius (600 degree Fahrenheit) heat to spin
turbines 24 hours a day, generating electricity for Jakarta, a four-
hour drive to the north. Chevron, which pioneered geothermal energy 20
years ago in Southeast Asia’s biggest economy, is about to see
competition.

Companies from General Electric Co. to India’s Tata Corp. are leading
an investment boom in Indonesia that may climb to more than $30
billion, anticipating President Susilo Bambang Yudhoyono will honor
his promise in February to boost clean- energy subsidies. The pledge
has spurred the biggest geothermal spending spree in Asia and the
largest outside of the U.S.

“There’s great momentum in Indonesia’s geothermal market, and demand
for power is there,” Mark Taylor, a geothermal analyst in Washington
at Bloomberg New Energy Finance, said in an interview. “But there are
regulatory risks for developers.”

Chevron was burned by Indonesia in the late 1990s, when the state-
owned utility forced it to renegotiate a power-purchase accord. The
San Ramon, California-based oil company is now planning to expand its
geothermal operations, helping Yudhoyono eliminate energy shortages
that threaten his target for as much as 6.6 percent economic growth
through his term’s end in 2014.

‘Geothermal Superpower’

Geothermal is central to Indonesia’s push for alternatives to fossil
fuels such as oil, which the country once exported and now must
import, driving up costs and curbing growth. Brownouts are frequent on
the main island of Java, and 35 percent of the nation’s 245-million
population doesn’t have access to electricity, the International
Energy Agency has said.

The nation, described by clean-energy investor Al Gore in January as
the first potential “geothermal superpower,” plans 9.5 gigawatts of
capacity by 2025. That’s more than triple the U.S.’s geothermal use
and about 33 percent of Indonesia’s electricity demand, according to
Bloomberg New Energy Finance.

Indonesia’s 17,000 islands straddle the Pacific Ocean’s volcanic “ring
of fire,” making the country to geothermal power what the Middle East
is to oil -- the world’s largest potential resource with 40 percent,
or about 28 gigawatts, of the total.

4% of Potential

Geothermal currently provides about 0.3 percent of global electricity
and 0.2 percent of energy for heat, and with better policy incentives
those levels could climb to 3.5 percent and 3.9 percent, respectively,
the Paris-based International Energy Agency said yesterday.

Indonesia has tapped about 4 percent of its potential and has orders
for 2.3 gigawatts of plants, second only to the U.S., New Energy
Finance data show. A gigawatt, about equal to the output of a new
atomic reactor, needs $2 billion to $4 billion of investment, Taylor
said. In comparison, Iceland, also a volcanic island, got 27 percent
of the country’s electricity from geothermal, according to government
figures.

“There’s a remarkable opportunity for Indonesia to increase the amount
of power generated from geothermal,” said Stephen Green, former head
of Chevron’s Indonesia and Philippines operations and now its vice
president of policy, government and public affairs. “There are
synergies between oil and geothermal and it makes sense for us to
exploit that,” he said in an interview Chevron’s Jakarta office.

Indonesia hasn’t always appealed to foreign investors, and skepticism
still goes beyond questions of how to uncork the boiling water that’s
trapped miles below the surface.

Obama’s Stepfather

After the Asian financial crisis, state-owned utility PT Perusahaan
Listrik Negaracanceled power purchase agreements with companies
including PT Paiton Energy, 40 percent owned by Irvine, California-
based Edison Mission Energy, because it couldn’t afford the contracts
after the collapse of the rupiah.

Unocal Inc., which built the plant in the rainforest and was acquired
by Chevron in 2005, was forced to renegotiate a deal to sell its power
at 4 to 5 U.S. cents a kilowatt-hour instead of 6 cents to 7 cents.
Unocal negotiated Indonesia’s first foreign-partnership geothermal
license in 1982 with the help of U.S. PresidentBarack Obama’s late
stepfather, Lolo Soetoro, who worked for Unocal as a government liaison.

The rainforest plant was opened in Mount Halimum Salak National Park
in 1992. Together with another about 100 miles west in Dajarat,
Chevron lights homes for 4 million people. To capitalize on the new
tariffs for geothermal electricity, the company is planning new plants
including a potential 200- megawatt facility in South Sumatra.

Investment Interest

Geothermal investors are again “starting to look at Indonesia as a
place where they can do business,” Ravi Krishnaswamy, a Singapore-
based director for energy consultancy Frost & Sullivan, said in a
phone interview.

Indonesia began consuming more oil than its domestic production
capacity in 2004 as economic growth surged. It suspended membership in
the Organization of the Petroleum Exporting Countries, or OPEC, in 2008.

Higher oil prices give the government more incentive to promote
geothermal power, Chevron’s Green said.

The generators use wells to tap underground deposits of scalding
water. At Salak, hot water and steam are pumped from as deep as 3,211
meters (10,535 feet) below the surface through 54 kilometers (34
miles) of pipes to turn turbines to make power. Each well takes as
much as 90 days to drill and costs up to $7 million, Chevron says.

Oil Dependence

There’s no shortage of foreign interest. Sumitomo Corp., Japan’s third-
biggest trading company, is building a 110- megawatt plant in nearby
Ulubelu. Australia’s Origin Energy Ltd. is partnering with power
company Tata in northern Sumatra.

“It’s good for the environment and good for reducing our dependence on
oil,” Widhyawan Prawiraatmadja, General Electric Co.’s Indonesia
company executive, said in a phone interview from Jakarta. “It also
frees up tradable resources such as oil and gas and coal to be
exported.”

Yet geothermal deals in Indonesia remain “very difficult,” according
to BNEF. The government’s decision to raise the price that state-owned
utility PLN pays for geothermal power to up to 9.7 cents per kilowatt-
hour may backfire, Vandana Gombar, a geothermal analyst at BNEF, wrote
in a February report.

The utility usually opts for cheaper coal power that enables it to
sell electricity to consumers at the government- mandated 6-7 cents
per kilowatt-hour. The policy hinges on whether the government will
continue to subsidize PLN at the higher prices because the increase
can’t yet be passed on to consumers, Gombar said.

The government’s plan is a “pipe dream” until it’s prepared to force
consumers to pay more for their electricity, Ari Soemarno, former
president of Indonesia’s state-owned oil company PT Pertamina, said in
an interview. The government can’t afford to keep subsidizing power
yet isn’t brave enough to force consumers to buy at cost, he said.

To contact the reporter on this story: Stuart Biggs in Tokyo atsbiggs3@bloomberg.net

To contact the editor responsible for this story: Reed Landberg atlandberg@bloomberg.net

Last Updated: June 15, 2011 07:39 EDT
Business
ExchangeTwitterDeliciousDiggFacebookLinkedInNewsvinePropellerYahoo! Buzz
Related Videos


Watch
Chevron Bets on Indonesia Volcanoes
June 15 (Bloomberg) -- Bloomberg's Stuart Biggs reports from Salak,
Indonesia, four hours south of Jakarta, about Chevron Corp.’s
expansion in geothermal energy output in the region. The company
relies on underground steam rising through 84 wells to spin power
generators in a rainforest which sits atop the biggest reserves of
volcanic heat for making clean energy in the world. Stephen Green,
former head of Chevron’s Indonesia and Philippines operations and now
its vice president of policy, government and public affairs, also
speaks.