Tokyo seeks extension of Indonesia gas concessions

OREANDA-NEWS. Japanese premier Shinzo Abe has expressed to Indonesian president Joko Widodo the need for co-operation in getting an extension of production-sharing contracts (PSCs) for the offshore Masela and Mahakam upstream blocks, which are key natural gas supply sources to Japan's long-term LNG supplies.

Widodo met Abe yesterday to discuss security issues and bilateral economic co-operation as part of his seven-day tour this week to Japan and China. Abe and Joko discussed further enhancing resource partnership in oil, natural gas, coal and mineral resources. The Japanese leader in particular asked the Indonesian president for co-operation in winning a PSC extension of the two offshore blocks, Masela and Mahakam, which Japanese upstream firm Inpex has 65pc and 50pc stakes in respectively.

Inpex, the operator of the Masela block, is in talks with Indonesian authorities on whether to expand production targets for the proposed 2.5mn t/yr Abadi floating LNG (FLNG) development project. A possible expansion is likely to delay the project's targeted start-up in 2018, which will further limit production period to generate good investment returns for the \$14bn FLNG project. The current PSC expires in 2028.

Abadi and Australia's 8.4mn t/yr Ichthys, both operated by Inpex, will be the key LNG supply sources for Japan in the coming years, along with new supplies from North America. Inpex, owned 18.94pc by the government, is leading the country's overseas upstream hunt, hoping to raise its oil and gas output above 1mn b/d of oil equivalent (boe/d) by the early 2020s. The firm's oil and gas output currently stands around 400,000 boe/d.

Jakarta is now in the final stages of making a decision on whether to transfer operatorship of the Mahakam block to its state-owned oil firm Pertamina ahead of the PSC expiry at the end of 2017. The election of Widodo last year raised hopes for more favourable investment atmosphere for foreign companies. But Total, the operator and 50pc shareholder of the Mahakam block, has halted expansion of the development east Kalimantan on concerns the PSC may not be renewed.

The Mahakam PSC made Indonesia the world's largest LNG exporter during 1980-2000 with gas supplies to its Bontang 22.6mn t/yr LNG project. The contract was previously extended in 1997 for 30 years until the end of 2017.

Abe and Widodo also agreed to enhance co-operation in developing more efficient coal-fired plants in Indonesia as part of climate change mitigation efforts and also Indonesia's programme to add 35,000MW to existing power generation capacity during 2015-19. Tokyo has been encouraging Japanese exports of clean coal technology, including advanced coal-fired power generation technology, to assist developing nations in their climate change battle. Japan's state-owned development bank JBIC is considering providing financial assistance for a 2,000MW ultra super-critical coal-fired power project in central Java's Batang proposed for a 2017 start-up by Japanese power firm J-Power and trading firm Itochu.