Indonesian President Joko Widodo decided that the Masela liquefied natural gas (LNG) plant will be constructed onshore. Masela, located in the Arafura Sea (Moluccas), is Indonesia's largest deep-water gas project. Previously, Japan-based oil company Inpex Corp and Netherlands-based Royal Dutch Shell proposed to construct the LNG plant offshore (which would have made it the world's largest floating LNG plant). On Wednesday (23/03) President Widodo rejected the proposal after months of polemic. Contractors Inpex and Shell are not expected to withdraw from the project but will need time to adjust plans.
Onshore Masela Plant: Nationalist & Political Interests versus Economic Considerations?
Widodo said it was a difficult decision but in the end calculations and considerations suggested an onshore plant would have more economic benefits for the country. The main considerations were related to the optimization of multiplier effects for the benefit of local communities and the national economy as a whole. Several analysts claim, however, that this decision is based on nationalistic sentiments as onshore development will actually raise investment costs by approximately USD $7.5 billion (due to an additional 600 kilometers of pipelines that are required). As such, one analyst stated that nationalist (and political) interests are priority for Indonesian decision-makers rather than rational economic considerations. Meanwhile, an analyst of the Eurasia Group said this case shows that Widodo is constrained by politics and vested interests of people that were behind his ascent to the presidential drivers' seat.
Masela is located in the province of Maluku (Moluccas), a stronghold of the PDI-P party that backed Widodo in the elections. Reportedly, local political leaders and businessmen have been lobbying for onshore facilities.
The polemic that occurred in recent weeks was also reflected by disunity among several Indonesian government officials. While Indonesian Minister for Energy and Mineral Resources Sudirman Said supported the offshore LNG plant as proposed by contractors Inpex and Shell, Indonesian Coordinating Minister for Maritime Affairs Rizal Ramli was in favor of onshore construction.
The giant USD $15 billion Masela LNG plant project is estimated to require 10 to 15 years of construction before coming online. Both Inpex and Shell have not released an official statement yet after Widodo rejected proposals for the floating LNG plant. However, Amien Sunaryadi, Head of Indonesia's upstream oil and gas regulator SKK Migas, informed reporters that both contractors will not withdraw from the project. However, proposals need to be reviewed and adjusted. The final investment decision is expected in 2018.
Oil & Gas Industry in Indonesia
The oil and gas industry of Indonesia is dominated by foreign players (such as Chevron Corp and Total SA). This is mainly the result of foreign players' larger financial resources and higher quality technology. However, due to Indonesia's weak investment climate, oil and gas exploration has been on the decline over the past two decades hence causing falling output (particularly oil output has fallen drastically over the past decades). Around a decade ago Indonesia was still the world's largest liquefied natural gas (LNG) exporter. In 2015, however, the nation nearly fell outside the top five (Qatar, Malaysia, Australia and Nigeria are the world's current top LNG exporters). In fact, due to rising domestic consumption, Indonesia may turn into a net LNG importer in the next decade.
Globally, various LNG projects have been scrapped or delayed in recent years due to cooling global consumption. Major importers, such as South Korea and Japan, have been eager to curtail gas imports, while Chinese demand slowed amid the country's economic slowdown. The subsequent supply glut managed to nearly halve LNG prices (long-term deliveries) in 2015 from their 2014 average.