JAKARTA (Reuters) - Indonesia hopes the 2030 withdrawal of global giants Shell and Chevron from two long-delayed natural gas projects will boost growth.
The Masela and Indonesia deepwater development projects, estimated to cost a total of $27 billion, are a test ride for Indonesia to attract oil and gas investment and reverse decades of declining production before climate change slows it down. need. Fossil fuel. .
"Our window of opportunity is short, we are competing with power transitions," said SKK Migas chief regulatory officer Benny Lubyantara.
Major obstacles to both projects include domestic gas prices, restrictions on gas exports, and the high cost of carbon capture and storage required for new gas projects to combat global warming.
Shell said last month it would sell its stake in the Masella project to Pertamina Indonesia and Petronas Malaysia, while Chevron agreed to sell its stake in the IDD project to Italy's Eni.
The deal - three years after the two major companies announced their intention to split - opens the way for the government to negotiate new terms for Indonesia's biggest gas project after several years of delays.
New investment is needed to double gas production to 12 billion cubic meters by 2030 to meet growing domestic demand.
Domestic gas demand will grow 19 percent from 2023 to 7.6 billion euros in 2030, according to forecasts from the Institute for Basic Service Reforms.
Indonesia will become a net gas importer by 2040 without major changes to attract investment, said Andrew Harwood, director of research at Wood Mackenzie consulting firm.
"If they can implement projects like IDD and Masela, they have the potential to remain net exporters," he said.
New requirements are needed.
Indonesia, once one of the top five exporters of liquefied natural gas (LNG), has halved in the past decade, according to Kepler data.
Since 2016, the country has not approved a major oil and gas project - the expansion of BP's Tanguh LNG plant.
The complexity of Indonesia's financial environment has long constrained investment. For example, the Indonesian Petroleum Association and Wood Mackenzie said in a joint report that the government only decides on profit sharing after development plans are submitted, making it difficult for investors to assess potential risks and benefits.
SKK's Migas Benny admits that in their current state, the returns are unattractive for most projects, especially those considering hundreds of millions of dollars in carbon capture and storage.
Jakarta is considering overhauling its entire registration program, he said. Currently, the revenue sharing formula between the government and gas project investors sets a base rate of 48% for companies.
Prateek Pandey, an analyst at consultancy Rystad Energy, said the current priority for the IDD project is to extend the production sharing agreements for the three blocks that expire in 2027 and 2028.
Eni will begin implementing its IDD plans after the Chevron transaction is completed, the spokesman said, but did not comment on questions about production sharing talks.
In Masela, which supplies the Abadi LNG project, Takayuki Yuda, CEO of operator Inpex, said the Pertamina merger "of course we expect support from the Indonesian government" and that the Masela gas market is very important.
Export, price restrictions
The IDD and Masela projects, along with BP's Tangguh Babur-3 and Pertamina's Jabaran Tiung Biru projects, will produce an additional 3.5 billion barrels of gas per day, according to SKK Migas.
Indonesia requires oil and gas producers to sell 25 percent of output domestically, but growing domestic demand has led some government officials to call for a blanket export ban that could deter developers.
"This should be ensured so that foreign investors can benefit from their investments," said Sun Naing, an analyst at BMI Research, part of Fitch Group.
Inpex's Yuda told reporters in Tokyo on Wednesday that any attempt to curb exports "could seriously affect the economics of our project."
Another hurdle is the ceiling on the price of government gas sold in seven units. Industry Ministry official Triani said the amount would be $6 per million British thermal units in 2020 to cushion the impact of the epidemic and prevent inflation. Previously, the limit was $7-10 per MB.
Apart from IDD and Masela, Indonesia is interested in exploring more resources around the islands. Several gas blocks will be auctioned this year, including the Natuna D-Alpha Block, the largest gas reserve at 230 Tcf.
"We need to act now before it becomes difficult to finance fossil fuel development projects," said Benny of SKK Migas.
"It's now or never to invest."
(Reporting by Francisca Nangoy; Additional reporting by Bernadette Christina Munte in Jakarta, Emily Chow in Singapore and Yuka Obayashi in Tokyo; Editing by Florence Tan and Sonali Paul). - Reuters
