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Jakarta Post

Shell plans to exit gas-rich Masela Block project

  • Norman Harsono

    The Jakarta Post

Jakarta   /   Tue, July 7, 2020   /   07:21 pm
Shell plans to exit gas-rich Masela Block project Masela oil and gas block (Courtesy of/maritim.go.id)

Dutch oil and gas giant Shell plans to sell its 35 percent stake in the gas-rich Masela Block, including in a major gas project, according to an official familiar with the matter.

Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas) operations deputy Julius Wiratno told The Jakarta Post on Monday that Shell’s decision was based on the current low crude oil prices and development delays caused by the COVID-19 pandemic.

Read also: Indonesia aims to double gas production by 2030 with major projects in pipeline

“The process goes on. They cannot just pull out like that. They have to remain committed to their plans for this year, even if it’s at a limping pace,” he said. “The show must go on.”

Shell and Japan’s Inpex Corp, which controls the remaining 65 percent stake, were slated to develop a multibillion dollar liquefied natural gas (LNG) facility in the Abadi field in the Masela Block, which holds an estimated 10.7 trillion cubic feet of proven gas reserves. The block is located in the southeastern Arafura sea.

Julius said the government and companies had already signed deals on the block’s development plans. The two entities recently agreed to develop the LNG plant on Yamdena Island.

“It's becoming a wait and see situation and, maybe, there will be a recalculation,” he said.

The facility, slated to begin operations in 2027, is expected to produce 9.5 million tons of LNG per year and thus, help Indonesia realize its dream of becoming a global gas exporting economy by 2030.

Read also: Indonesia, Inpex agree on Masela development plan

Shell’s planned exit leaves a question mark over the fate of the Masela development, which had already been delayed for several years, due to disagreements over development plans.

Shell declined to comment, while Inpex was not immediately available for comment.

According to an AsiaTimes article on June 25 that cited anonymous sources, Shell’s plan to exit the Masela Block was due to President Joko “Jokowi” Widodo’s decision to build the LNG facility onshore, which removed the need for Shell’s floating LNG (FLNG) technology.

“Inpex is really upset and there is no agreement on how to proceed. The situation is really bad. Inpex feels betrayed and Shell is dragging its feet,” a source said.

Shell reportedly plans to sell its stake for US$2 billion dollars. Inpex wanted to buy the stake but at one-fifth of the price, said another source cited in the article.

Read also: Red flags raised for onshore Masela project

Shell, Inpex and SKK Migas initially planned to develop the LNG facility offshore but met resistance from former coordinating economic minister Rizal Ramli, who pushed for onshore development to create jobs for local residents.

The offshore versus onshore debate dragged on such that President Joko “Jokowi” Widodo personally intervened in late 2015. He chose to develop the project onshore, despite a privately-hired consultant recommending otherwise.

However, SKK Migas’s Julius refuted the article, saying that Shell’s exit decision was based on low crude oil prices and development delays amid the coronavirus pandemic.