T

he delay in the development of the gas-rich Masela block owing to the government'€™s poor handling of investment talks in the oil and gas sector has set a bad precedent for the investment climate, aside from other looming risks, particularly the country'€™s future gas supply.

Six months after submitting its proposed revision of the plan of development (POD), the developers of the block, Japanese firm Inpex and Anglo-Dutch firm Shell, have yet to receive a decision from the government on whether the project can progress under an offshore floating liquefied natural gas (LNG) scheme.

President Joko '€œJokowi'€ Widodo, who now has the final say on the project, is still undecided on whether the block will continue under the offshore scheme or should be adjusted to an onshore development, an idea that has sparked controversy.

Business players say the prolonged decision has created uncertainty and has had a significant negative impact, particularly on the upstream oil and gas sector.

'€œThis is a very big project, which is likely to be the biggest investment for the next 20 years,'€ said Sammy Hamzah, president director of Ephindo Energy.

'€œInvestors understand that the government wants to be careful because this is big for Indonesia. However, companies developing it have also performed years of studies. If we ask Inpex and Shell, the delay has significantly impacted the economics of the project,'€ Sammy said.

Under the contractors'€™ initial plan, Masela, which is located in the Arafura Sea, was scheduled to start delivering gas in 2024, with Inpex submitting a revision of the block'€™s POD in September last year.

Following a recommendation from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas), Energy and Mineral Resources Minister Sudirman Said was set to approve the POD revision when his supervisor, Coordinating Maritime Affairs Minister Rizal Ramli, opposed the scheme, saying it would not give maximum benefits to the local economy. Rizal instead introduced the onshore scheme.

On Wednesday, SKKMigas said that the investment '€” known as the final investment decision '€” needed to be delayed until the end of 2020 because of political factors. The delay of the US$14 billion project means it will be operational in 2026.

Business Monitor International (BMI) Research argued that high regulatory uncertainty, the imminent glut in the Asian LNG space and a decline in prices would make the commercial viability of three gas projects questionable.

The projects, which are still in the pre-final investment decision stage, are Masela by Inpex, Gendalo-Gehem projects '€” which are part of the Indonesia Deepwater Development (IDD) project '€” by Chevron and Tangguh Train 3 by BP.

'€œImpacts 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,'€ said Peter Lee, BMI Research oil and gas analyst.

It was even estimated that project delays while consumption continues to grow could make Indonesia a net importer of gas by 2022 as the country, currently an LNG exporter, is estimated to need to start importing the product in 2019.

Sudirman promised that the government would maintain existing investment and encourage its realization.

'€œWe continue trying to send messages to the industry that the government wants to maintain a sound business climate. In person, I also talk to potential investors, the oil and gas contractors, to ensure that every problem has its own solution. We cannot generalize all processes,'€ he said.