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Jakarta Post

Red flags raised for onshore Masela project

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Thu, March 24, 2016   /  09:25 am
Red flags raised for onshore Masela project

Risks loom large of a possible socioeconomic and cultural quagmire following President Joko '€œJokowi'€ Widodo'€™s decision to favor onshore development of the gas-rich Masela block in the name of greater benefits for national and local economies, dropping an initial offshore scheme proposed by the block'€™s contractors, Inpex and Masela.

Under an onshore scheme for the Masela block, the contractors may have to find appropriate locations in the nearby Tanimbar Islands to station liquefied natural gas (LNG) plants close enough to the gas reserves located in the Arafura Sea.

Some analysts have raised concerns about technical issues in the development of the country'€™s most important deepwater gas project, including the presence of an ocean trench between the gas reserves and possible islands slated to host the plants, such as Aru Island, which is located 600 kilometers from the block, and Yamdena Island, 300 kilometers from the block.

In addition to the technical issues, public policy expert Agus Pambagio, who has visited the islands, said socioeconomic and cultural issues as well as religious backgrounds might complicate decision-making about which islands will host the gas plants.

'€œThere are concerns regarding how local residents who expected an onshore development will receive the project [...] This will likely be a problem if one is developed and another is not,'€ Agus said.

He also highlighted that the demographic differences between Aru Island, inhabited mostly by Muslims, and Yamdena Island, which has mostly Christians, could spark religious tensions in the area.

While the constitution guarantees the freedom of religion, the country is facing a number of conflicts triggered by religious issues.

Separately, Connie Rahakundini Bakrie, president of the Indonesian Institute for Maritime Studies, criticized the decision to choose the onshore scheme as it was at odds with the President'€™s vision of Indonesia as a global maritime axis. '€œWe have big maritime potential but our orientation remains on onshore developments. Local economic empowerment can still occur even if the plants are located offshore,'€ Connie said.

She also highlighted that onshore development could cost the country in terms of geopolitical strategy as the block is very close to neighboring Australia.

Meanwhile, Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) spokesperson Elan Biantoro said onshore development could create immediate jobs for locals, with more than 10,000 workers expected to be absorbed in building infrastructure projects, including roads and plants.

Elan said, however, that in the long run, an offshore plant '€” which would allow some equipment to be built elsewhere or even overseas '€” promised greater revenue for the state, which could in turn be used to develop local economies.

According to data from the Energy and Mineral Resources Ministry, the approximate cost of onshore refinery construction is US$16 billion, less than the $22 billion required if the refinery was built offshore.

When announcing his decision on Wednesday, President Jokowi highlighted that onshore development was seen to bring more benefits to the national and local economies, as well as multiplier effects for regional development.

SKKMigas chief Amien Sunaryadi said his office would follow up on the decision and talk with Inpex, the operator of the block, on further measures. Inpex holds 65 percent interest in the block and its partner Shell holds the remaining 35 percent. The two companies proposed a floating LNG development with a capacity of 7.5 million tons per year for the block.

Nov. 16, 1998
The government awarded the block to Japan's INPEX (65 percent interest) as operator and its partner Royal Dutch Shell (35 percent) for a 30-year period until 2028.

December 2010
Inpex and Shell submitted the Masela POD under a scheme for an offshore LNG plant with a capacity of 2.5 million tons per annum (MTPA)

Sept. 10, 2015
Inpex submitted to SKKMigas a revision to its Masela plan of development (POD). The revision involves the development of a floating LNG plant with 7.5 million tons per year in processing capacity, higher than an initial plan of 2.5 million tons.

Oct. 7, 2015
Coordinating Maritime Affairs Minister Rizal Ramli criticized the offshore plan. Rizal claimed that the plant, touted to become one of the world'€™s biggest LNG facilities, would leave the community'€™s economy behind and instead proposed a new idea for an onshore plant.

November 2015
President Jokowi decided to seek a second opinion and the government hired US consultants Poten & Partners to assess which of the two alternatives '€” an offshore or onshore plant '€” is the most commercially feasible development for the project.

Dec. 29, 2015
Poten & Partners recommended an offshore liquefied natural gas (LNG) plant, similar to the plan of development submitted by Inpex and Shell, the operators/investors of the Masela block which was approved by SKKMigas.

Feb. 1, 2016
Jokowi said in a limited Cabinet meeting on the development of the Masela deep-sea gas block that before making the final decision, he would first meet with the block's operator, Inpex Corp.

Feb. 2, 2016
Inpex has called on the Indonesian government to make a quick decision on the future of the Masela gas project, which has been in limbo as a result of a proposed change in its development plan.

Feb. 3, 2016
Representatives from Inpex reportedly visited the presidential office.

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