The long-drawn negotiations over the gas-rich Masela block may come to an end soon as the main sticking point has been resolved following a recent meeting in Japan. Coordinating Maritime Affairs Minister Luhut Pandjaitan told reporters that his two-day trip to Tokyo was fruitful as the two governments had apparently reached an agreement on the duration of the Masela block’s contract extension after it expires in 2028. Japan’s biggest energy developer Inpex Corp., which holds a 65 percent stake in the block, previously proposed a 10-year contract extension to make up for lost time resulting from prolonged negotiations and repeated plan of development (POD) revisions.
Although Luhut declined to disclose the number of years the two governments had agreed upon, he said Indonesia had rejected the proposed time frame. “In relation to Masela, although they asked for 10 years, we felt that seven years was much more realistic,” he said. Inpex and the world’s top liquefied natural gas (LNG) trader Royal Dutch Shell, which holds the remaining 35 percent stake in the block, were previously put in the spotlight after President Joko “Jokowi” Widodo decided in March that the project had to be developed as an onshore scheme, completely contrary to the initial offshore proposal, as it was believed this would create more benefits for both the country’s economy.
As a result, the companies were required to revise their POD once again before the end of this year. Inpex and Shell submitted the original POD for an offshore scheme in 2010, but the discovery of more extensive resources led the contractors to submit a modified one last year, adjusting the capacity of the floating LNG plant to 7.5 million tons per year, up from 2.5 million tons. With the current POD, the gas field was expected to start production by 2024. It is now forecast that the gas field will only begin operations in 2026, just two years shy of Inpex and Shell’s contract expiry The government also believes that the work on the Masela block, which is set to become Indonesia’s largest deep water project, will cost less than the previously estimated US$ 22 billion.
Inpex itself has requested a cost recovery worth $1.2 billion, which will be strongly considered by the government “following an audit”, according to Luhut. Furthermore, Luhut said the Japanese government had agreed that the gas produced from the Masela block would be distributed to local petrochemical and fertilizer industries. Located in Maluku Island in the eastern part of the archipelago, the gas-rich Masela block is estimated to be able to produce 1.2 mmscfd and 24,000 barrels of condensate per day for 24 years.
Inpex senior communications and relations manager Usman Slamet said the company was still in talks with the government over the issue to allow the development of the gas block to begin as soon as possible, adding that it believed the government would do its best for this project. Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said the 2026 operational start date was possible only if a POD and the final investment decision (FID) could be approved by the end of the year and by 2020 respectively. However, if the POD is postponed until 2017, and the FID post-poned to 2021 or 2022 then the operational start date could be two years after 2026,” he told the Post, adding that the renegotiation of the POD was highly dependent on the contract extension and the fiscal incentives being offered by the government.
Jakarta Post, Page-13, Saturday, Dec, 24, 2016
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