“First, with Abadi set to take FID [final investment decision] by 2022, the project partners will face crowded construction and engineering markets,” Wood Mackenzie (WoodMac) research director Andrew Harwood said on Monday in an email.

Second, he explained that the project’s forecast onstream date of about 2027 would put it in a “softer environment” for marketing LNG, since basically there would be less LNG demand as other LNG supplies would have already entered the market.

WoodMac previously estimated that a supply capacity of more than 90 million metric tons per annum (mmtpa) of new LNG would secure its FID during 2019 and 2020. “With this increased level of activity, LNG operators will be under pressure to avoid the cost and schedule overruns that have plagued the LNG industry in the past,” he said.

Some projects still in the pipeline are the floating LNG Tortue Ahmeyimon offshore of Mauritania and Senegal, the North Field LNG in Qatar, Area 1 in Mozambique, the Arctic LNG 2 in Russia, the Papua LNG in Papua New Guinea and the Calcasieu Pass LNG in the United States.

Harwood said the projects with the best chance of taking FID would be those with the lowest breakeven costs and those that have secured long-term buyers, or those projects that have strategic importance to key stakeholders.

A researcher with the Jakarta-based ReforMiner Institute, Pri Agung Rakhmanto, said previously that Abadi’s LNG project would also face competition from other cheaper LNG projects. “Indonesia must look to the world in terms of the oil and gas business, including the construction of the LNG plant, because later on the IDD [Indonesia Deepwater Development] and Abadi’s LNG plant still have to be able to compete with other LNG projects in the world,” he said.

He referred to recent data from WoodMac that the price of LNG from the large IDD project and the Abadi project would be 12 percent higher than the Brent crude price at about US$70 per barrel.

“Meanwhile, another six LNG projects in the world are below those estimates. In fact, [for] two projects in Qatar and Papua New Guinea the LNG price is estimated to be below 12 percent of Brent crude price at around $50 per barrel,” he said.

The government and Masela’s operator, Inpex, on Sunday inked a heads of agreement (HoA) for the $18 billion to $20 billion projects on the sidelines of the G20 energy and environment ministers’ summit in Karuizawa, northwest of Tokyo.

The HoA outlines basic principles that are to be stipulated in the revised plan of development (PoD) and terms regarding the production-sharing contract (PSC) period, financial conditions and cost estimates, which should be agreed on in advance of the commencement of the project.

Inpex planned to submit the final PoD to the government in several weeks and aimed to make an FID within three years, the company’s president director, Takayuki Ueda, said as quoted by Reuters.

“We are also currently considering to apply for a 20-year extension and amendments of the PSC in conjunction with the submission of a revised PoD,” Inpex Indonesia spokesperson M. Nunung Kurniawan said.

For Inpex, this would be its second major LNG project as an operator. Its first was the $40 billion Ichthys LNG project in Australia.

The Ichthys project, Japan’s biggest overseas investment and the country’s first major project as the lead operator, started shipping LNG last October after several delays and cost overruns.

“Inpex has ramped up output from its first operated LNG project, Ichthys in Australia, and will have strong cash flows to carry out a second LNG project,” Harwood said.

The Masela block is located in the Arafura Sea, south of Papua and not far from Indonesia’s border with northern Australia. Inpex has a 65 percent stake in the block and the other 35 percent stake is currently held by the Royal Dutch Shell oil corporation.

Inpex secured a 30-year PSC to operate the block from the government in 1998 and then explored it until 2000, when it found the Abadi gas field, which was estimated to have 6.97 trillion cubic feet (tcf) of gas in reserve.

After the discovery, Inpex submitted in 2008 the first PoD to the then-upstream oil and gas regulator BP Migas, which has since been replaced by the Upstream Oil and Gas Regulatory Task Force (SKKMigas). In December 2010, the government approved the first PoD, which envisioned the adoption of an offshore liquefied natural gas plant with an annual processing capacity of 2.5 million tons.

However, five years after the discovery of additional gas reserves in the block, Inpex requested to revise its PoD’s annual output capacity from 2.5 million tons to 7.5 million tons. According to kompas.com, SKKMigas was set to approve the revision of the PoD, but then the task force was instructed by President Joko “Jokowi” Widodo in mid-2016 to switch from an offshore to an on shore liquefied natural gas (LNG) facility as the latter option was expected to make a higher economic impact on the people of Maluku, especially on the Aru Islands.

Currently, based on recent data from SKKMigas, the LNG project in the Masela block now is to only go onstream in the second quarter of 2027 with an LNG output of 9.5 million tons per year and 150 million standard cubic feet per day (mmscfd).

Besides that, the project was also hit recently by a rumor that Shell would seek an early exit when Reuters published a story in May saying that the firm was in the process of selling off its stake in Abadi’s LNG project. However, to date there has been no official confirmation of the report.

The project is crucial for the country’s gas supply, of which a shortage is predicted by 2035. The government said it believes that the shortage could be eased by production in massive gas field, including the Masela block, which is estimated to hold 10.7 tcf of proven gas reserves.

Popular

Women in philanthropy: Fifi Pangestu’s leadership and vision in Bakti Barito Foundation

Philippines to endure extreme heat until mid-May

Magnitude 6.5 earthquake strikes off Java island: authorities