Widodo scraps offshore LNG project

Saumlaki harbour, Yamdena, near the Masela field. Source: Wikimedia

Indonesian President Joko Widodo has rejected Inpex Corp and Royal Dutch Shell’s proposal to build the world’s largest floating liquefied natural gas (LNG) plant in the east of his archipelago, because he favours a land-based refinery.

Indonesia’s energy regulator, SKKMigas, warned earlier this month that rejecting the US$15 billion plan to process gas from the Masela field offshore would damage the industry and cost jobs.

Shell and Inpex declined to comment.

Widodo said he wanted to prioritise development in impoverished eastern Indonesia rather than the high-profile 7.5 million tonne annual floating LNG project. The cabinet in Jakarta has reportedly been heavily split on the issue.

“This is a long-term project that concerns hundreds of trillions of rupiah. From these calculations, we have decided to build it onshore,” Widodo said.

“The first consideration is that we want the local and national economy to be positively impacted by the development of the Masela block. We also want regional development to be affected by the big project,” he told the media.

The president’s supporters argue that an onshore LNG refinery would bring prosperity to Maluku, including development of a petrochemical and fertiliser sector.

But delays decreased the commercial attractiveness of the scheme in an already troubled sector, Business Monitor International Research oil and gas analyst Peter Lee said.

“Impacts on the domestic market will be pronounced as a combination of rising consumption, stagnant production and regulatory hurdles for new project start-ups lead Indonesia’s net LNG exports to fall drastically over the short to medium period,” Lee said, in reference to three gas projects that include Masela, Gendalo-Gehem by Chevron — part of the Indonesia Deepwater Development project — and Tangguh Train 3 by BP.

SKKMigas fears that an onshore project could increase costs and delay completion by three years from around 2026. The maritime coordinating ministry, in contrast, calculated that an onshore refinery would be cheaper. The ministry directs energy policy.

Energy Minister Sudirman Said, who has U-turned on the issue, urged SKKMigas, Inpex and Shell to adjust rapidly to the president’s ruling.

“These two investors will continue to work together because they’ve been working for this for 16 years and they’ve spent on exploration costs,” Said explained. “We will give them a chance to reassess this, but we want all parties to have the optimal benefit.”

The Masela block in the Timor Sea near the maritime border with Australia is 65-per-cent owned by Inpex and Shell has a 35-per-cent stake.

State-owned Pertamina is apparently demanding at least 10 per cent of the block.

Numerous oil and gas exploitation schemes are being shelved around the world as fuel prices fall.

Asian LNG prices fell 80 per cent over the past two years.