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Pertamina should ‘think twice’ about buying Masela stake
The government is considering having Pertamina buy Shell’s 35 percent stake in the Abadi liquefied natural gas (LNG) project in the Masela Block, but experts say financial constraints in dealing with multiple giant projects may make that a difficult prospect for the state-owned company.
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he government is considering having Pertamina buy Shell’s 35 percent stake in the Abadi liquefied natural gas (LNG) project in the Masela Block, but experts say financial constraints in dealing with multiple giant projects may make that a difficult prospect for the state-owned company.
Moshe Rizal, secretary-general of the Oil and Gas Companies Association (Aspermigas), said Pertamina should “think twice” before buying Shell’s share in the project, given that the company was currently operating two of Indonesia’s most productive oil and gas sites, including the Rokan Block in Riau and the gas-rich offshore Mahakam Block in East Kalimantan, which had stretched its resources thin.
“[The Masela Block] is still in the development stage and has not begun production. Though there has been a discovery and the plan of development has been approved, [the project] requires a long time and an enormous amount of money before it can start producing [gas],” he told The Jakarta Post on Thursday, referring to Shell’s $800 million to $1 billion stake in the project.
Shell’s efforts to divest from the Masela Block have dragged on, creating uncertainty around the stalled development of the Abadi field, which holds 360 billion cubic meters of gas.
Japan’s Inpex controls the remaining 65 percent of the block.
In response, President Joko “Jokowi” Widodo has instructed his government to explore options for Pertamina to buy Shell’s share of the project. Jokowi gave the order during a press conference on July 27 on a trip to Tokyo, where he met Japanese Prime Minister Fumio Kishida to discuss the project’s funding options, including the involvement of the Japan Bank for International Cooperation (JBIC).
$20 billion for Abadi
Developing the Abadi field’s proposed 9.5 million ton-per-year onshore liquefaction scheme is expected to be challenging and cost some $15 billion to $20 billion, according to Moshe. He estimated that it would take another three to five years until the project went onstream.
“The determining [factor] is Pertamina's financial ability to participate, as well as Inpex’s terms and conditions for participation,” National Energy Board (DEN) member Herman Darnel Ibrahim said on Friday, adding that given Pertamina’s current financial state, the government would probably need to help in one way or another.
“It makes more sense to renegotiate with Shell and try to get them back into Masela,” Moshe said.
Moshe suggested that Pertamina focus on reaching its targets for the sizeable blocks it was already engaged in, noting the country’s declining oil production.
Nationwide output has fallen from 831,000 barrels of oil per day (bopd) in 2016 to 660,000 bopd in 2021, Energy and Mineral Resources Ministry data show.
Output at the Rokan Block – once the most productive in the country – has declined significantly as reserves have dwindled, though it did improve somewhat this year to produce around 161,000 bopd in the first half, which was nonetheless 7.6 percent below the target.
Read also: Analysis: Big gas reserve found in the Aceh sea amid departing global oil firms
Pertamina’s plans
Upstream Oil and Gas Special Regulatory Task Force (SKK Migas) head Dwi Soetijpto said on Aug. 3 that the task force had asked Pertamina to review the company’s capability to pledge a participating interest in the Masela Block. Previously, Dwi encouraged Pertamina to take a 15 percent share in the project.
“We hope Pertamina can participate in operating the Masela Block,” he said in Jakarta on Wednesday, adding that the task force expected Pertamina to finish its study by September, as Inpex planned to begin an intensive phase of the project next year.
Arya Dwi Paramita, corporate secretary of Pertamina’s upstream arm Pertamina Hulu Energi (PHE), told the Post on Friday that the company was considering the matter.
“Pertamina [...] will examine [...] the opportunity to take part in developing the Masela Block to increase oil and gas production [and] maintain national energy security,” Arya said, without providing further details.
Inpex, Japan’s biggest oil and gas explorer, said earlier this year that it hoped to start production in the Masela Block in the early 2030s if a final investment decision (FID) was made in the second half of this decade.
Inpex said in August 2021 that it did not plan to make a FID until around 2024-2025, two years later than the previous projection.
