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Indonesian president to decide soon on location of Inpex's LNG plant

[JAKARTA] Indonesia's president will soon decide whether a US$15 billion LNG plant will be built onshore or offshore, a palace spokesman said on Thursday, a day after the project's main investor announced investment delays and job cuts due to months of uncertainty.

Japanese oil and gas firm Inpex Corp said late Wednesday the sanctioning of the Masela Abadi project would be delayed by at least two years to 2020, leading to a cut of at least 40 per cent of its 400 Indonesian employees.

Inpex submitted its offshore development plan to the government last September, but President Joko Widodo has yet to decide on the location of the project due to internal bickering.

The indecisiveness exacerbates the difficulty the government faces in attracting long-term energy investments to Southeast Asia's largest economy amidst low oil and gas prices. "The president will make a decision soon. He still wants to hear several perspectives," said presidential spokesman Johan Budi.

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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.

Shell engineers working on the project have been told to seek other work within the company, Indonesia's energy regulator SKKMigas said. "Shell and Inpex remain committed to developing the Abadi gas field and to use Floating LNG technology as we believe it is the best, most cost effective and beneficial option," said Haviez Gautama, a spokesman for Shell in Indonesia.

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 the offshore project 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 US$6 billion if the LNG is processed onshore instead.

SKKMigas says its own calculations show an offshore LNG plant would be US$4.5 billion cheaper than a land-based one.