Indonesia oil and gas project delayed

Jakarta’s demand for fuel is rising. Source: Wikimedia

Japanese oil and gas extractor Inpex Corp plans to delay introducing a US$15 billion liquefied natural gas (LNG) project in Indonesia until 2020, Jakarta’s energy regulator said, “at least two years” behind an earlier schedule.

The decision highlights the troubles President Joko Widodo faces attracting energy investment, exacerbated by low oil and gas prices and a protracted dispute over Inpex’s offshore development intentions.

The delay means the Masela Abadi project, jointly planned with European giant Royal Dutch Shell, will not go online until at least 2026, which is two years before the companies’ contract expires.

Indonesian industry regulator SKKMigas said Inpex planned to cut its workforce of around 400 in the archipelago by at least 40 per cent. Earlier statements said staff cuts of 60 per cent were expected although SKKMigas chairman Amien Sunaryadi later reduced the number to 40 per cent.

SKKMigas said Shell was advising its engineers associated with the Masela project in Jakarta, Kuala Lumpur, Malaysia, and the Netherlands to look for internal employment elsewhere within the fuel giant.

“SKKMigas deeply regrets that in Indonesia’s economic situation, which is currently promoting investment, in fact there is a big investment right in front of our eyes that must be postponed by at least two years,” Sunaryadi said.

The pace of gas schemes have slowed globally as LNG prices have slumped in parallel with oil, prompting many companies to delay funding projects.

If it goes ahead, the planned 7.5 million-tonne-per-year Abadi Floating LNG project would be the largest of its kind in the world but a member of Widodo’s cabinet said that the government could save US$6 billion if LNG was processed onshore instead.

SKKMigas said a change to an onshore project would increase costs and could delay the delivery date by three years.

“We are still waiting for a government decision on the revision of the plan of development, and hope there will be a decision as soon as possible,” said Usman Slamet, an Inpex Indonesia spokesman.

A Shell spokesperson said the company was “working with Inpex to review resourcing requirements” to ensure that it “can then move as quickly as possible once the approval is granted”.

Presidential spokesman Johan Budi said Widodo would make a decision on the project in a week or two.

Delays to its upstream projects would increase the reliance of Asean’s largest economy on fuel imports, Edi Saputra, a senior analyst at Wood Mackenzie, said.

“It’s not good for the government since domestic projects will give more revenue to the country, both in taxes and multiplier effects,” Saputra said.

Saputra predicted that Indonesia’s LNG demand this year would grow to around 4 million tonnes from 2.5 million tonnes last year, reaching 10 million tonnes by 2023.