D

evelopment of the US$4 billion deepwater project in the Muara Bakau block will proceed despite falling global oil prices and uncertainty clouding two other deepwater projects in the country.

Construction of Jangkrik and Jangkrik North East in the Muara Bakau block off the coast of East Kalimantan has reached 15 percent completion, according to the Upstream Oil and Gas Regulatory Special Task Force's (SKKMigas) acceleration unit for Muara Bakau development head, Eko Hariadi. 'Production is expected to start in the first quarter of 2017,' he said.

The progress makes Jangkrik and Jangkrik North East, developed by ENI Indonesia, the only deepwater projects to make significant headway in Indonesia. Meanwhile, the fate of two other deepwater development projects in the country ' the Indonesia Deepwater Development (IDD) by Chevron, also off East Kalimantan, and the Abadi field of the Masela block by Inpex in the Arafura Sea ' remain uncertain.

The IDD and Abadi projects are currently facing issues like a request by contractors for an extension of the contract and the current plunge in oil prices that will affect profitability. The benchmark brent crude oil dropped below $65 per barrel for the first time since 2009 earlier this week.

Offshore oil and gas development in Indonesia, including the IDD, Muara Bakau and the Abadi field, is only economical at oil prices of $80 per barrel or more, with an estimated return rate of 10 percent, energy think tank Wood Mackenzie has estimated. Onshore development, meanwhile, is still feasible with oil prices of around $60 per barrel.

The Indonesian Petroleum Association (IPA) has estimated that there would be a 20 percent drop in capital expenditures among oil and gas contractors in Indonesia due to delays on expensive projects caused by the drop in oil prices.

Even so, ongoing projects cannot be halted. '[In this industry] when you start, you have to finish it,' IPA president Craig Stewart said. 'But new projects can be reviewed.'

SKKMigas deputy for planning Aussie Gautama said the regulator expected the deepwater projects to proceed as the country risked future losses if development was halted.

'We have to finish the IDD on schedule. It is expected to produce 1 billion cubic feet per day, which is equal to $10 million. Multiply that by 365 if it is delayed for a year,' Aussie explained.

The IDD, which covers the development of four production-sharing contracts, was initially slated for completion in 2018, but the completion date could be delayed until 2024, as Chevron is planning to submit a new development proposal after finding new reserves. The SKKMigas is pushing to complete the project by 2022, according to Aussie.

Amid uncertainty in deepwater gas projects, the country has begun improving infrastructure for gas distribution. PT Pertamina Gas (Pertagas), a subsidiary of oil and gas giant PT Pertamina, announced on Thursday that it had commenced the commissioning stage of its 350-kilometer Arun-Belawan pipeline.

The Arun-Belawan pipeline has received an allocation of leftover gas ' known as tail gas and produced from the North Sumatra offshore block operated by Exxon Mobile ' of 5 million standard cubic feet per day (mmscfd), according to Pertagas president director Hendra Jaya.