Intellasia East Asia News – Explainer: Delay, exiting operator, what is happening to Indonesia’s strategic gas projects?

Four Indonesian strategic upstream gas projects are facing headwinds from pandemic-related restrictions and exiting operators, presenting challenges to the country’s ambition to become a major Asia Pacific gas exporter by 2030. The four national strategic projects are expected to produce 65,000 barrels of oil per day (bopd) and 3,484 million standard cubic feet per day (mmscfd) of gas, according to Upstream Oil and Gas Special Regulatory Task Force (SKK Migas) data. The projects are the Abadi field in gas-rich Masela Block, near Maluku; Indonesia Deepwater Development (IDD) in the Makassar strait, near Sulawesi; Tangguh Train 3 in West Papua; and Jambaran Tiung Biru (JBT) in East Java. The combined value of the four projects is an estimated $37.21 billion. However, the two biggest projects, IDD and the Abadi field, are on the verge of losing a key stakeholder, throwing the projects’ future into the realm of uncertainty. The projects, whose gas production is 9.5 times their oil production, are expected to drive Indonesia’s transition from an oil economy to a gas economy, an ongoing transition since 2002.

Indonesia’s four strategic upstream oil and gas projects

The projects’ combined output is 65,000 bpd oil and 3,484 mmscfd gas

Abadi field The biggest project among the four is the Abadi gas project in Masela Block, whose minority operator, Shell, was revealed last month to be planning an exit. Shell and Japan’s Inpex Corp, which control a 35 percent and 65 percent stake, respectively, were slated to develop a multibillion-dollar liquefied natural gas (LNG) facility in the Abadi field, which holds an estimated 10.7 trillion cubic feet of proven gas reserves. Shell then received government permission to start divesting its assets in Masela, with the first step being opening geological data of the block to potential buyers. On Monday, SKK Migas head Dwi Soetjipto stated that the company would divest its assets over an estimated 18 months, adding that Shell would continue developing the Abadi field despite the divestment. “The aim is to have [Abadi] onstream by 2027 and we have agreed with operators to try and stick with this schedule,” SKK Migas head Dwi Soetjipto told lawmakers on Monday. SKK Migas operations deputy Julius Wiratno previously told The Jakarta Post that Shell’s exit was due to poor macroeconomic conditions amid the unfolding health crisis. “The projects were ready to go, but now, with COVID-19 and low oil prices, it’s wait and see and maybe with some re-calculations,” he said. Shell Indonesia declined to comment while Inpex Corp said it would continue focusing on developing the Abadi field. “As the operator of the project and with the government of Indonesia’s support, we have confidence that this project will continue to progress,” said Inpex acting corporate communications manager Moch N. Kurniawan. The $19.8 billion project, located in the southeastern Arafura Sea, aims to produce 1,600 mmscfd of liquefied natural gas (LNG), 150 mmscfd of piped gas and 35,000 bopd of gas condensate, once operational by 2027. Abadi is the biggest project among the four by output and investment value. The project has a long history of delays due to disagreement between the government and operators over development plans.

Indonesia Deepwater Development (IDD) The second-biggest project is the IDD project, whose operator, United States-based Chevron signaled plans to exit the project earlier this month. A Chevron spokeswoman said the project was not attractive enough to secure global portfolio capital but also noted that the company had not made the final call to pull out. “We believe the project will have value for another operator,” PT Chevron Pacific Indonesia spokeswoman Sonitha Poernomo told the Post. The government has offered the project to Italy’s Eni, according to the Energy and Mineral Resources Ministry’s acting oil and gas director general Ego Syahrial. The $6.98 billion dollar project is expected to produce 844 mmscfd gas and 27,000 bopd once operational in 2025. “IDD is one of the largest pre-development resources in Southeast Asia, but owing to the challenges of developing a high cost, low margin project in a volatile price environment, development has stalled for several years,” said upstream oil and gas analyst Andrew Harwood of energy consultancy Wood Mackenzie. Tangguh Train 3 The third-biggest project is Tangguh Train 3 in Bintuni Bay, West Papua, led by British energy firm BP. The $8.9 billion dollar project is expected to produce 700 mmscfd of gas and 3,000 bopd once operational in 2021. The latest SKK Migas data show that the project’s onshore development hit 83.27 percent completion while its offshore development reached 98.15 percent completion as of June this year. The targets are slightly below the targets of 84.35 percent and 99.39 percent completion, respectively, due to manpower and material delays following international lockdowns. “SKK Migas urges BP Tangguh to commit to its onstream plan of 2021,” said Dwi of SKK Migas at a press conference on first-half performance on July 17. Most recently, SKK Migas’s Julius said manpower had been trickling back on site. The project had up to 13,000 workers in March but dropped to as low as 6,000 workers as Indonesia entered a partial lockdown to contain the COVID-19 outbreak. “Starting in early July 2020, it has been gradually going up, and now there are around 7,500 workers,” he said. Jambaran Tiung Biru (JBT) The smallest project among the four is the Jambaran Tiung Biru (JBT) project in Bojonegoro, East Java, operated by state-owned oil and gas giant Pertamina. Pertamina subsidiary Pertamina EP Cepu or PEPC pronounced “Pepsi” expects the $1.53 billion dollar project to produce 190 million mmscfd of gas, mostly slated for electricity generation but also for industries in Central and East Java. The latest SKK Migas data show that the project had reached 66.62 percent completion as of June, below the 77.01 percent target, also due to manpower and material delays amid the pandemic. In the latest development, PEPC drilling manager Bambang Purwanto said on June 16 the company had finished drilling four out of six gas wells for the JBT project. His team would proceed with drilling the fifth and sixth wells. “We hope these drillings happen smoothly such that we can 100 percent complete drilling by November this year,” he said in a statement. Julius of SKK Migas said on August 14 that Pertamina’s drilling activity was still on schedule even though construction had been delayed. “JTB’s progress has slowed due to a lack of manpower, but the drilling is okay. It’s still on schedule,” he said.


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