March 17, 2016 / 5:00 AM / 4 years ago

Inpex, Shell postpone Indonesian gas project by at least two years: regulator

JAKARTA (Reuters) - Japanese oil and gas firm Inpex Corp will delay sanctioning a $15 billion liquefied natural gas (LNG) project in Indonesia until 2020, the Indonesian energy regulator said late on Wednesday, “at least two years” behind an earlier schedule.

Japan's biggest oil and gas explorer Inpex Corp President and CEO Toshiaki Kitamura poses in front of the company logo before an interview with Reuters at the company headquarters in Tokyo January 9, 2015. REUTERS/Toru Hanai

The decision highlights the difficulties the administration of President Joko Widodo faces attracting energy investment to Southeast Asia’s largest economy, exacerbated by low oil and gas prices and a protracted political dispute over Inpex’s offshore development plans.

The delay means the Masela Abadi project, jointly developed with Royal Dutch Shell, will not be operational until at least 2026, around two years before the companies’ contract is due to expire.

Inpex planned to cut its Indonesian workforce of around 400 by at least 40 percent, while Shell engineers working on the project had been told to seek other work within the company, Indonesia’s industry reglator SKKMigas said.

“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,” its chairman Amien Sunaryadi said in a statement.

Spokesmen for President Widodo and for Shell in Indonesia could not be reached for comment.

The pace of development of giant gas export schemes has slowed globally as LNG prices have plummeted with oil prices, prompting many companies to delay funding decisions until business conditions brighten.

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

SKKMigas has warned that a change to an onshore project would increase costs and could push the completion date back by a further 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, senior communication manager at Inpex Indonesia.

Once a decision is made Inpex will continue with Front End Engineering Design on the project, while staffing levels will be adjusted in line with the company’s workload, he added.

Delays to its upstream projects will increase Indonesia’s reliance on imports, said Edi Saputra, a senior analyst at Wood Mackenzie.

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

Saputra forecast Indonesia’s 2016 LNG demand to grow to around 4 million tonnes from 2.5 million tonnes in 2015, and to reach 10 million tonnes in 2023.

Reporting by Wilda Asmarini, Bernadette Christina Munthe; Writing by Fergus Jensen and Oleg Vukmanovic, editing by David Evans and Richard Pullin

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