T

he government is considering granting a contract extension for deepwater development in the Masela block so that the project becomes more economical and helps the country minimize its energy deficit.

Vice President Jusuf Kalla said on Monday that the extension for the Masela block would be awarded if the developer performed well and accelerated its progress.

'We won't extend it now. We understand that it's impossible for developers to produce from the project [which has been ongoing for] six years. However, it will be extended only if you [the developer] succeed,' Kalla said.

Japanese Inpex is working on the deepwater gas project in Masela, which involves the development of the Abadi field in the Arafura Sea.

Representatives of Inpex paid a visit to the Vice President's office on Monday.

The contract for the block is due to expire in 2028. Inpex was previously reported to be seeking an extension by 20 years until 2048 to make the project more economical and so the contractor could get a return on its investment.

Kalla said Inpex was committed to carry on work in the block and was expected to complete the project by 2022.

Given the time line, Inpex will only be able to make use of the project within six years. Thus, the firm is seeking certainty from the government that it will continue operating the gas project beyond 2028 to be able to get return on its investment.

Apart from gas field development, Masela's Abadi field also consists of other projects that include the development of a floating liquefied natural gas facility with a capacity of 2.5 million tons per year, according to a plan of development approved in 2011.

Under the initial plan, the project is estimated to cost US$5 billion and is expected to start delivering gas by the end of 2016. However, the project is now stalled in part due to pending decisions over the contract extension.

The Abadi field is estimated to have 6.05 trillion cubic feet (TCF) in proven resources.

Kalla said that Inpex also reported it had found additional resources in its working area.

Energy and Mineral Resources Minister Sudirman Said said his ministry would assess carefully the Masela project. 'They [Inpex] have delivered their concerns on the extension issue. We will assess all the requirements,' he said.

Under current regulations, contractors of oil and gas blocks in the country are only allowed to submit extension proposals of their working areas of a maximum of 10 years before expiry. In the case of the Masela block, any extension appeal can only be submitted in 2018, a year before the current government's period under President Joko 'Jokowi' Widodo and Vice President Kalla ends.

However, under government regulation No. 35/2004, the extension appeal and the government's decisions can be delivered beyond the 10-year-time line if the contractor already has a gas-selling agreement.

The continuation of deepwater projects is seen as necessary for the country, which is facing a future potential energy crisis.

Indonesia, a former member of OPEC, has seen a widening gap between oil supply and demand. It has been subject to huge imports of oil and petroleum products to fuel its economy.

The government has been calling for the utilization of other energy resources, such as natural gas, to narrow the energy supply gap. However, developing gas resources in Indonesia is challenging, particularly due to the location of the country's reserves, which are mostly located in deep-sea in the eastern part of the country, where infrastructure facilities are poor.

Apart from the Masela project, there are several deepwater projects in the country, such as Muara Bakau by Italian ENI and the Indonesia Deepwater Development (IDD) project by Chevron.

The development of Muara Bakau is ongoing. Meanwhile, Chevron is working on a new plan of development for the IDD due to more reserves being found and its plan to also seek an extension of working areas covered in the project.