COVID-19 hits Indonesia upstream projects, LNG exports, production targets: sources

Jakarta — Indonesian upstream oil and gas projects, including Eni's Merakes gas development and BP's Tangguh LNG train 3 expansion, are expected to see delays due to the ongoing coronavirus pandemic, according to sources and government officials.

Additionally, buyers of Indonesian LNG have also asked for cargoes to be rescheduled or deferred due to the current market turbulence, while the country is likely to miss its annual oil and gas production targets in 2020 due to the disruptions, officials said.

The developments are in line with other national oil companies and oil majors trimming upstream capex and rationalizing project spending, even as downstream markets hit by demand destruction are facing cargo cancellations, shutdowns and suspension of operations.

Oil major BP's Tangguh LNG project, which is adding a third processing train with a capacity of 3.8 million mt/year, is likely to miss its deadline for starting operations in the third quarter of 2021 due to the coronavirus pandemic as some workers were asked to go home until further notice, a person with knowledge of the situation said.

Tangguh Train 3 has already been delayed by one year from its original deadline and the first cargo may now commence at the end of the fourth quarter of 2021, the person said.

"There's a potential delay to the project, but we have no idea how long it may last. We will carry out recovery efforts as no one is happy if there is a delay," Julius Wiratno, operations deputy at Indonesia's upstream regulator SKK Migas, told SP Global Platts. "We will do our best to complete the project."

BP did not respond to an email enquiry seeking confirmation.

The Tangguh LNG Train 3 expansion will take total capacity to 11.4 million mt/year. About 75% of Train 3's production will be allocated to Indonesia's state power utility Perusahaan Listrik Negara and the rest will be allocated for export.

BP has committed to supply 1 million mt/year of LNG from Tangguh Train 3 to Japanese utility Kansai Electric. The oil major expects to sell around 120 cargoes from Tangguh LNG in 2020, S&P Global Platts reported previously.

BP is the operator of Tangguh LNG with a 37.16% interest. The other partners are CNOOC (13.90%), MI Berau BV (16.30%), Nippon Oil Exploration (12.23%), KG Companies (10%), LNG Japan (7.35%) and Talisman (3.06%).

Another project likely to be delayed indefinitely is Italian explorer Eni's Merakes development, the Indonesian source said.

The Merakes gas field offshore East Kalimantan was discovered in October 2014, and the Indonesian government had approved a development plan in 2018 with gas production expected around 2021.

Eni said gas from the Merakes development was planned to supply the Bontang LNG plant and contribute to the life extension of the plant. In December, Eni sold a 20% stake in the East Sepinggan area, where Merakes is located, to Neptune Energy.

Eni said it was looking into reports of Indonesia project delays, when asked to confirm.

Meanwhile, Inpex assured that the front end engineering design for its landmark Masela project is still expected to happen, its spokesman Masela Mochamad Kurniawan said.

Inpex plans to conduct FEED this year and commence production in the later half of the 2020s. Inpex will produce gas totaling 10.5 million mt/year, including 9.5 million mt/year of LNG as well as local gas supply of 150 million cu ft/d and 35,000 b/d of condensate.

Production takes a hit

Meanwhile, record low spot LNG prices and oil price volatility have forced Indonesia's domestic and international LNG buyers to reschedule or delay shipments, sources said.

"So far there are no demands to cut LNG volumes. It's more of rescheduling, such as from PLN (Indonesia's state power company) and China. Some Japanese buyers that are known to buy western LNG have asked to speed up shipments, while other have asked to delay shipments," one official said.

Indonesia's Bontang LNG plant expects to produce 89.6 LNG cargoes this year compared with 111.7 cargoes in 2019 due to low LNG prices, an official said.

Indonesia is likely to miss its oil and gas production target for 2020, officials said. It initially set a production target of 775,000 b/d of crude and 1.195 billion boe/d of natural gas in the 2020 state budget, at an estimated Indonesian Crude Price of $63/b.

However, the government has announced a new oil price scenario affected by COVID-19, with a base line of $38/b and worst case scenario of $31/b. The Indonesian Crude Price was $34.23/b in April.

Indonesian oil and gas companies have also adopted social distancing measures that affect normal operations, as some employees were found to be infected.

"There is a procedure to limit employee mobilization in oil and gas blocks, especially expatriates," SKK Migas's Wiratno said, adding that the regulator was working on mitigation plans.