"The CO2 in the Jambaran field in Cepu block is around 30 percent. I don't think it is a problem, but the cost will be higher to produce the gas," Maman Budiman, senior vice-president at Exxon Mobil Indonesia, told Reuters by phone.

"It will cost more to separate the C02 from the gas," he added.

An official at energy watchdog BPMIGAS said normal CO2 levels in natural gas are between 0 and 5 percent.

"There is a technology to separate the CO2. BPMIGAS wants Exxon to continue with its plan to develop the gas from Cepu, because Indonesia needs it," the official, who declined to be identified, said.

Dodi Hidayat, deputy chief of BPMIGAS, said the cost of producing natural gas from Jambaran field is estimated at 30 percent higher than normal production.

Exxon Mobil's Budiman said it was too early to say how much it would add to costs, or whether it would delay production.

Cepu has an estimated 1.7 trillion cubic feet of natural gas reserves.

Kurtubi, an analyst at the Center for Petroleum and Energy Economics Studies in Jakarta, said there was a possibility of a delay in gas production from Cepu.

"Exxon and Pertamina have to assess cost production and re-study whether the market can absorb the gas from the block as high prices," Kurtubi said.

Indonesia, Asia-Pacific's only OPEC member, is increasing its use of alternative energy such as natural gas in a bid to reduce oil use amid high prices and its dwindling oil production.