Subject: Chevron Bets on $30 Billion Volcanoes Beneath Rainforest - Bloomberg
From: "Michael Andrews" <[email-masked]>
To: "Curt Hastings" <[email-masked]>, "Eric Schwerin" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Devon Archer" <[email-masked]>
Date: Wed, 15 Jun 2011 11:21:48 -0400

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)
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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 [email-masked]

To contact the editor responsible for this story: Reed Landberg [email-masked]

Last Updated: June 15, 2011 07:39 EDT
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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.