Inpex’s agreement with Indonesia paves way for revised Abadi plan submission

Japan’s Inpex has signed a Heads of Agreement (HOA) with Indonesian authorities on behalf of the contractors with the endorsement of Shell on the basic principles regarding a revised Plan of Development (POD) for the Abadi LNG Project.

The project involves developing the Abadi gas field in the Masela Block located in the Arafura Sea in Indonesia.

Inpex, as the operator of the project and on behalf of the project’s contractors (Inpex and Shell), has been engaged in discussions with the authorities with the aim of submitting the revised POD, the company explained on Monday.

The HOA outlines the terms agreed upon with the authorities following discussions held after the completion of Pre-FEED work on a revised POD to achieve an economically competitive project. The cost estimation in the revised POD of the project which will include the construction of onshore LNG plant, gas pipeline, and offshore facilities, is contained in the agreed terms of the HOA.

The signing of the HOA acknowledges agreement between the parties of a revised POD that is sufficiently economically competitive. Inpex will now start the process of submitting the revised POD for approval as well as amending and extending the Masela Block production sharing contract (PSC).

The development of the offshore find has been delayed first by Inpex, which had its initial FLNG development plan approved by the government in 2010, only for the company to revise the plan in 2015 to include a larger capacity FLNG following the increase of estimated reserves at the field.

After the second submission, the Indonesian government then in April 2016 decided the floating solution was no longer an option, telling the company to go back to square one and devise a plan for the Abadi field development via an onshore LNG plant.

Inpex in 2018 conducted Pre-FEED work for an onshore development option with an expected annual production capacity of 9.5 million tons.

‘Economically competitive project’

Takayuki Ueda, President & CEO of Inpex, who attended the signing, said: “The execution of the Heads of Agreement, which follows a series of constructive discussions with the Indonesian government, positions the Abadi LNG Project as an economically competitive project by international standards. Inpex appreciates and values the proactive intervention of His Excellency Ignasius Jonan, Minister for Energy and Mineral Resources and the Indonesian government, and looks forward to maintaining close and cooperative relations.”

Utilizing the knowledge and experience gained through operating the Ichthys LNG Project, Inpex said it will continue to work closely with its partner Shell to make the necessary preparations to begin FEED work after receiving approval of the revised POD and reaching an agreement with the authorities on the PSC amendments and extension.

Commenting on the signing, Clare Harris, Shell’s Executive Vice President, Venture Development said, “The Heads of Agreement is a significant milestone in the development of the Abadi project, an important economic opportunity for Indonesia. We look forward to continuing our collaboration and support of Inpex as the Joint Venture aims to develop a competitive project.”

The project is the first large-scale integrated LNG development project operated by Inpex in Indonesia and follows on from the Inpex-operated Ichthys LNG Project in Australia. The project is expected to produce approximately 9.5 million tons of LNG per year. The Abadi gas field features excellent reservoir productivity and has one of the world’s largest reserves, raising expectations of efficient development and stable LNG production operations over the long-term.

Positive step for Abadi LNG project

Following the signing of HoA with the Indonesian government on the Masela project, Wood Mackenzie research director, Andrew Harwood, said: “The HoA formalizes the recent outline agreement between the Government of Indonesia and Inpex on the Masela development project. After several setbacks in recent years, it’s a positive step for the project, which is of national strategic importance given its size and potential contribution to Indonesia oil and gas supply outlook.

“The agreement will provide further details of the development concept, schedule, capital investment and PSC terms under which the giant Abadi field will be developed. The proposed PSC terms are confidential, but we understand that the government and Inpex have agreed terms that improve the project’s economic viability.

“Globally, we estimate over 90 mmtpa of new LNG supply capacity will take Final Investment Decision (FID) during 2019-2020, leading to a wave of new investment – over $200 billion will be spent on LNG developments between now and 2025. With this increased level of activity, LNG operators will be under pressure to avoid the cost and schedule overruns that have plagued the LNG industry in the past. The projects with the best chance of taking FID will be those with the lowest breakeven costs, those that have secured long-term buyers or projects of strategic importance to key stakeholders.

“There are two key risks facing the project. Firstly, with Abadi set to take FID by 2022, the project partners will face crowded construction and engineering markets. Secondly, the project will be brought onstream around 2027, which may be a softer environment for marketing LNG offtake to buyers as other LNG supply will have already entered the market.

“Inpex has ramped up output from its first operated LNG project, Ichthys in Australia and will have strong cash flows to carry out a second LNG project.”

Offshore Energy Today Staff

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