Summary
Is this another indication that the FLNG (Floating LNG) projects are now too expensive or that the Indonesian Government wishes greater control and local content for the LNG plant?
Analysis
The Masela gas field PSC is 100% owned by Japan's Inpex and the field is located in the Timor Sea about 800km from West Timor close to the Indonesian-Australian maritime border. It is in about 300 to 1000meters water depth and is estimated at 10tcf reserves. As the location is remote from the Indonesian domestic market the Indonesian Government and their energy agency BP MIGAS have been happy for all the gas to be exported. Indonesian legislation says that 25% of all new gas fields must be provided for domestic use but this was to be waived for the Masela field.
Inpex had potentially 5 options for LNG from the field – Floating LNG deepwater; onshore on Tanimbar Islands; onshore Aru Island; Floating (offshore) at Australian Tassie Shoal and piped to the Existing Darwin LNG plant. The latter was their preferred option back in 2006 to feed train 2 at Darwin, even though the pipeline would be very long. This was vetoed by the Indonesian Government as they wanted an Indonesian project. The developed options for both Tanimbar and Aru Islands were evaluated as being not feasible for both technical and environmental reasons. In mid-2007 BP MIGAS very strongly proposed a FLNG solution be developed and then did a “back flip” at the end of the year proposing an offshore LNG plant in shallow Indonesian waters.
By mid-2008, Inpex was now actively working on a FLNG plant of 4.5mtpa with anticipated Indonesian Government approval by end of 2008 and a forecast FEED and EPC during 2009-11 with commissioning in 2015. The projected cost at this time was around $14bn but this had risen to $19.6bn by the end of the year. Of course, the economic world changed about this time and by January 2009 Inpex were saying that the costs had been massively reduced to around $10bn.
And now we come up to date with the Indonesian Government indicating preference for an onshore LNG plant on Tanimbar Islands. They believe that the cost will be significantly less (maybe 25% of the FLNG) and the 150km subsea pipeline required to be feasible as the sea was not as deep as first thought and the seabed more accommodating. However, they have asked Inpex to continue with the FLNG option while they do more investigation.
Had Inpex as the project developer been left alone to choose the best option, in compliance with the Indonesian rules and legislation, we would have a real project. As it is, we have ended up with a confused mixture of 2 possible projects with the inevitable result that timescales will be pushed further and further back. Is cost the issue? I doubt it as had it been so it would have been Inpex that would have raised the issue. This is more to do with politics and is a classic saga of Government interference in project development – I might even use it for an educational case study!
