Floating LNG plant off Indonesia to cost less

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Jan. 26 -- The cost of a proposed floating LNG plant in Indonesia's Timor Sea would be around $10 billion—about half an earlier government estimate—due to lower infrastructure costs, according to Inpex Holdings Inc., the project's developer.

"We expect [a figure of] around $10 billion," said Shunichiro Sugaya, Inpex senior general manager of the Masela project, explaining that the price of steel is going down with the price of oil and that "reflects the lower price, lower capex (capital expenditure)."

Earlier this month, Indonesia tentatively agreed to Inpex's proposal for the construction of a floating LNG plant, intended primarily for use at Abadi natural gas field in the Timor Sea.

"In principle we have agreed to [the] Inpex proposal, but we are still evaluating the economic value of the project," said Evita Legowo, director general of oil and gas at the Indonesian energy ministry (OGJ Online, Jan. 11, 2009).

Inpex Corp. currently is the sole operator of Abadi gas field on the Masela Block in eastern Indonesia, but reports surfaced earlier this month that Royal Dutch Shell was considering taking part in the project.

At the time, Inpex said it would not rule out the possibility of inviting companies to take part in the project, but it had not yet held any talks with any company about selling stakes.

"Since this is a big project, many people are interested. But we are not looking for partners for the time being," said Kazuya Honda, Inpex's public relations group manager.

"Partnering with other companies in energy projects is common practice in the industry," and there is a possibility that "Inpex would partner with somebody if we think it's necessary to diversify risks," he added.

However Inpex has not decided whether to look for other companies to join the project, according to Sugaya.

"We have not yet decided (on) any farm-out policy now," he said, adding that under the production-sharing contract there is 10% participation for Indonesia and 90% for Inpex.

The Japanese firm estimates there is more than 10 tcf of gas reserves in Abadi field, which—if confirmed—would make the project the second-biggest new gas field after the Tangguh project in Papua, which has combined reserves of 14.4 tcf.

Inpex plans to construct one LNG train having a capacity of 4.5 million tonnes/year, with production to begin in 2016. Japanese buyers constitute the main market for the LNG, while the Indonesian government also wants some supply for its domestic market, said Sugaya.

Contact Eric Watkins at hippalus@yahoo.com.

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