Indonesian delays perplex gas project investors
March 25, 2015 -- By Anita Nugraha, Staff
Indonesian gas projects face delays because their operators do not know if their production-sharing contracts are to be extended: only this month did Total learn the fate of its contract to produce gas from the Mahakam field.
The government's inability to decide what will happen to fields when their production-sharing contracts expire means that billions of dollars of investment are on hold and the country's gas output is stagnating.
The rules of PSC extensions are governed by the country's 2001 oil and gas law, which has been awaiting key amendments since the constitutional court disbanded the former upstream regulator BPMigas in late 2012 for abusing its power.
The court set up a temporary upstream taskforce SKK Migas to carry out the regulator's role but as BPMigas' role in the upstream sector was at the center of the oil and gas law, the constitutional court had to ask the government to amend the law to reflect the new reality and that process that has been delayed for several years.
The projects that face delays include US major Chevron's IDD project in the Makassar Strait and Inpex's Masela project, Gde Pradnyana, secretary of upstream regulatory body SKKMigas said March 11.
The projects are mainly delayed because the operators do not know if the same terms will apply.
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Chevron's IDD project was originally scheduled to come on stream in 2018, but will likely be delayed to 2020, Pradnyana said.
The IDD project includes three PSC blocks -- Ganal, Rapak and Makassar -- covering the Bangka, Gehem, Gendalo, Maha and Gandang fields.
The Makassar PSC expires in 2020, Rapak in 2027 and Ganal in 2028.
Chevron has sought an extension of the PSCs to allow the project to be economically viable, but this approval is still pending, Pradnyana said.
The three fields have combined output of 1.24 Bcf/dof gas and 58,000 b/d of condensate.
Chevron's senior management told analysts March 10 that the company has completed drilling for Bangka, which is on track to see first gas next year.
"The focus of the second phase of development at Gendalo-Gehem is now on optimizing project design, working with the government to extend the production sharing contract and to secure long term buyers for the LNG. A start-up date is yet to be determined," the company said.
Some of the gas from the IDD project is to be processed at the Bontang LNG plant.
Japan's Inpex has a 65% operating interest in Masela, with Anglo-Dutch major Shell holding the remaining 35%.
Inpex wants a 20-year extension to the Masela PSC, arguing the current contract does not give the partners enough time to make a return on their investment.
SKK Migas has proposed that the government give a three-year approval in 2015, as approval for a longer PSC extension would create more problems and could take a longer time, SKK Migas' planning deputy chief Aussie Gautama said.
"We will do our best to make sure that contract extension can be made in 2015," Gautama said.
The Indonesian government in 2010 approved the development plan for the block's Abadi field, which includes a 2.5 million mt/year floating LNG plant.
The Masela block contains potential gas reserves of 14 Tcf and significant condensate resources, according to Indonesian government estimates.
Next article: Revision sought for Indonesia's oil, gas laws