JAKARTA - The development of the giant Natuna gas project may be delayed due to uncertainty over terms and conditions, which could affect the selection of partners for the project, two energy ministry sources said on Tuesday.

Indonesian state oil and gas firm Pertamina expects the giant Natuna natural gas project to come onstream in the next eight or nine years provided it gets government approval next year. The development of Natuna includes building liquefied natural gas (LNG) plant.

Indonesia said last year it had awarded Pertamina the operating rights as it said Exxon Mobil's contract giving it a 76 percent share had expired in 2005. The U.S. oil major has repeatedly said that the contract ran until early 2009.

The terms and conditions for Natuna D-Alpha project have not been decided by the government. If there is no decision by the beginning of next year, the project may be delayed, an energy ministry official, who declined to be named, told Reuters.

There are also complications regarding what the government wants in terms of the production split for Natuna project. Typically, Pertamina has a privilege in any oil and gas project in Indonesia, he said.

The government has decided that Pertamina should have a production split of 40 percent in any oil and gas project in Indonesia, a privilege that is intended to help Pertamina expand its business.

Another source at the energy ministry said that because of the high carbon dioxide content in the Natuna gas reserves, the development of the project was expected to be very costly, so investors were more likely to demand better returns.

Pertamina's President Director Karen Agustiawan said previously that the state firm was waiting for the energy ministry to finalise terms and condition for Natuna before deciding on its new partners.

Last year, Pertamina named eight potential partners: Petronas [PETR.UL], Exxon Mobil (XOM.N), Chevron (CVX.N) and France's Total (TOTF.PA), Royal Dutch Shell (RDSa.L), Norway's StatoilHydro (STL.OL), Italy's Eni ENI.M, and China National Petroleum Corp.

The question is whether the (new) partner will accept the lower production split, the second source said.

Pertamina, which does not have the technical expertise to develop the project alone nor the financing, has said it wants to keep a 40 percent stake, with 60 percent to be shared among the other partners.

Out of the Natuna D-Alpha block's 222 trillion cubic feet (tcf) of gas reserves, about 46 tcf are thought to be commercially recoverable.

The block, which is about 1,100 kilometres (680 miles) north of Jakarta and 200 km east of the West Natuna fields that feed gas to Singapore, accounts for about a quarter of Indonesia's total commercially recoverable gas reserves of 182 tcf. (Reporting by Muklis Ali; Editing by Sara Webb)

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