(MENAFN- Asia Times) JAKARTA – After rejecting floating liquefied natural gas (FLNG) technology to exploit one of Indonesia's largest – and most remote – offshore Natural gas discoveries, Indonesia's Joko Widodo administration has now approved its use by a Malaysian company for a smaller onshore field in western Papua.
That's not the only paradox. While Genting Oil and Gas Ltd's Kasuri block lies only a short distance away, BP's Tangguh LNG production plant on Bintuni Bay won't be taking its gas because it is fully committed to domestic and North Asian buyers.
Under a revised plan of development, the Ministry of Energy and Mineral Resources has signed off on Genting supplying 230 million cubic feet (MCF) of gas a day to an FLNG – the first time the process will be used in Indonesian waters.
A further 101 MCF will go to a US$1.5 billion ammonia and urea plant to be built by state-owned fertilizer company PT Pupuk Kalimantan Timur on the south coast of Bintuni Bay in Papua's Bird's Head region.
Discovered in 2011, Kasuri contains proven reserves of 2-3 trillion cubic feet (TCF) and is expected to come on stream in 2025, adding to Indonesia's existing LNG production of 32.2 million tonnes a year (MTA).
“BP has more than enough gas of its own,” says one industry source, who believes the government went along with Genting exporting most of its gas as a trade-off for supplying the marginally profitable but much-needed fertilizer facility.
Pupuk Kaltim currently produces five million tonnes of nitrogen fertilizer from its five ammonia and urea plants adjoining the 22.6 MTA Bontang LNG production complex in East Kalimantan that has been in operation since 1977.
Indonesia remains one of the world's largest importers of fertilizers, spending $2.2 billion in 2021 on imports of nutrients consisting of nitrogen, phosphorus and potassium from the US, China and Russia.
Based on Tangguh's proven reserves of 18 TCF – and potential reserves thought to be as high as 30 TCF – the government recently approved an early 20-year extension to BP's contract, which runs out in 2035.
BP workers at the Tangguh natural gas project set for a massive expansion in Papua Indonesia. Photo: BP
Tangguh has sufficient capacity to meet a growing interest from local industry, with Brazilian nickel producer Vale Indonesia negotiating with BP to buy LNG for a 500MW plant to power its smelter in Morawali, Central Sulawesi, that goes into production in 2025.
China's Tsingshan is also interested in gas for its Weda Bay, Halmahera, nickel complex, 600 kilometers northwest of Tangguh, and copper giant Freeport Indonesia plans to replace its 195-megawatts of coal-fired electricity with LNG for its Grasberg underground mine in Papua's Central Highlands.
Only a year into his presidency in 2015, Widodo rejected a plan by Japan's Inpex and Royal Dutch Shell to develop the 18.5 TCF Masela block in the Arafura Sea using Shell's FLNG technology, which had first been successfully employed on Australia's Northwest Shelf.
The Mines and Energy Ministry had earlier approved a floating platform as the basis for the initial development plan in 2010; when appraisal wells proved the presence of greater reserves, Inpex drew up a revised plan expanding the facility from 2.2 million to 6.8 million tons.
Widodo changed all that on the advice of then-coordinating minister Rizal Ramli, who argued that onshore development would spur growth across the Maluku islands – a region that has since become a nickel-smelting powerhouse.
In a decision he may now regret, the president insisted on laying a 180-kilometer pipeline from Masela's Abadi field across a 3,000-meter-deep trench to an onshore production facility on remote Tanimbar Island, north of the Indonesia-Australia maritime border.
That boosted the cost of the project from $16 billion to $20 billion and led to Shell quietly pulling out of the partnership in 2019. It has been at a standstill since then, with other oil majors showing little interest in joining the enterprise.
State oil company Pertamina aims to take over Shell's minority 35% stake, but without a partner in the deal it will need to cough up at least $1.4 billion, the perceived value of the British firm's investment in the block.
That's not all. Pertamina will also have to allocate an estimated $6.3 billion in capital expenditure over the next five years to cover the cost of developing a field that is considered uneconomic under current market conditions.
Analysts say Jakarta's policy of essentially nationalizing maturing fields when their contracts come up for renewal has turned away investors at a time of more attractive new prospects in West Africa and the northeast coast of Latin America.
Moreover, constantly changing regulations and an unfavorable fiscal policy has seen Shell, French oil giant Total and US majors Chevron and ConocoPhillips all pulling out of Indonesia in the past few years.
Those remaining include BP, Italy's ENI, ExxonMobil, operator of the Cepu oil and gas field in East Java, Spanish firm Repsol and Britain's Harbour Energy, both of which are actively exploring in the Andaman Sea with only mixed results.
A natural gas facility at the Masela gas field in the Arafura Sea, Maluku, Indonesia. Photo: Facebook
Kasuri was once part of BP's wider concession, but distracted by its efforts to secure the neighboring Tangguh field the British company was forced to relinquish the block in the early 2000s.
Although it was acquired by Genting in 2008 and had made sufficient progress in terms of drilling activity and results by 2012, it took authorities 11 years to approve its plan of development and will take another 3-5 years to begin production using a leased FLNG.
The government will still have to grant an extension to its contract, which expires in 2038, three years before the termination dates of its two supply commitments.
BP's third 3.5 MTA production train is not due to be commissioned until later this year, three years behind schedule, because of delays caused by 2018 earthquake disasters in West Java and Central Sulawesi and the onset of the Covid pandemic in 2020.
The new facility will sell 75% of its annual output to state-owned power utility Perusahaan Listrik Negara (PLN) and the rest to Japan's Kansai Electric. A planned fourth train will eventually bring total production to more than 15 MTA.
Discovered in 1994, Tangguh's six fields began supplying gas to BP's first two 2.8 MTA production trains in 2009, five years before ExxonMobil's hugely lucrative Arun LNG operation off northern Sumatra finally ran out of reserves.
While Arun's output was mostly for export, about 60% of Tangguh's gas will be used domestically, with the balance going to China's CNOOC, which has a 25-year contract for 2.45 MTA, South Korea's K Power (800,0000 MTA), steel maker Posco (550,000 MTA) and Mexico's Sempra Energy.