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Interview: Indonesia's Masela block set for offshore LNG, onshore gas plants: minister

Karuizawa, Japan — Indonesia is set to sign the plan of development for its giant deepwater offshore Masela block with Japan's Inpex, the

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operator of the block, at the end of June, to produce 9.5 million mt/year of LNG offshore and 150 million standard cubic feet/day of gas at an onshore gas processing plant, the country's energy minister told S&P Global Platts Saturday.

"Hopefully the first plan of development will be signed by the end of June during the G20 summit in Osaka," Ignasius Jonan, Indonesia's minister of energy and mineral resources, said in an interview on the sidelines of the G20 energy ministerial meeting in Karuizawa, Japan.

A signing ceremony is expected to be held over the development in front of Japanese Prime Minister Shinzo Abe and

Indonesian President Joko Widodo on the sidelines of the G20 Osaka summit over June 28-29, Jonan said.

"The decision is a combination of onshore and offshore [facilities]. So the production target will be 9.5 million mt/year of LNG plus 150 million standard cubic feet per day [of gas] for onshore," Jonan said.

The Indonesian energy minister added that the onshore gas processing plant would produce the equivalent of 1.5 million mt/year.

PRODUCTION SHARING

Describing the Masela gas production split as "dynamic," Jonan said: "We have agreed that Inpex might get around 40%, a minimum depending on realization of their investment cost so we will recalculate again prior to the first [production]."

"It's quite dynamic, so we cannot say 50:50 or 60:40 [production sharing split] at the moment," he said, adding that the first production is expected in 2027. "It depends on realization of investment costs."

On Saturday, Dwi Soetjipto, chairman of SKK Migas, signed a heads of agreement with Inpex's President and CEO Takayuki Ueda, and Shunichiro Sugaya, president of subsidiary Inpex Masela, on the Masela gas development, in Karuizawa, as witnessed by Platts.

Ahead of the signing of the HOA Saturday, Jonan had signed a memorandum of understanding with Japan's Minister of Economy, Trade and Industry Hiroshige Seko on bilateral energy cooperation in areas including oil, natural gas, coal, renewable energy and hydrogen.

Jonan and Japan's Inpex have previously agreed on some strategic issues regarding Masela's Abadi LNG development in the Masela block.

According to SKK Migas, the Masela block development is expected to require $18 billion-$20 billion of investment. The development is expected to require $6-$7/boe or 20% lower compared with an offshore model that had been expected to reach $8-$9/boe.

OPEC MEMBERSHIP

Indonesia, meanwhile, is not considering reactivating its OPEC membership for 2019 as it does not find any urgency, Jonan said.

"Our membership for OPEC is still put on hold. Are we going to reactivate? The answer is not this year, so I do not know about next year because at the moment we do not see any urgency to reactivate our membership in OPEC," he said, adding that the current administration will officially end by October.

Currently, Indonesia produces around 800,000 b/d of crude oil for the domestic oil demand of around 1.2 million-1.3

million b/d, creating a need of importing about 500,000 b/d of refined products, Jonan said.

Indonesia, a net oil importer, temporarily suspended its membership in the producer group on November 30, 2016, because it disagreed with the organization's decision to cut production.

IMO MANDATE

Amid the looming International Maritime Organization's new sulfur limit that takes effect next year, Indonesia will accept it as a member of IMO, Jonan said: "We have embraced our oil importer to comply with the regulation."

He acknowledged that Indonesian distributors might have to adjust their fuel costs from a possible increase in marine fuel prices. Jonan said: "I do not think the IMO policy increases significant costs. Maybe on [some] adjustment, very small fraction."

The IMO will cap global sulfur content in marine fuels at 0.5% from January 1, down from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%.

Commenting on Indonesia's first import of US crude, Jonan said: "It is surprising for me. The first time we imported from the US, not the other way around."

Asked whether Indonesia would continue buying US crude, Jonan said: "It's commercial, so as long as it is competitive it should be ok [to buy more]."

Indonesia is the latest in a growing line of Asian importers that have tested US crude oil for the first time amid surging US crude output and exports. In addition, US crude is often priced at attractive discounts to Asian crude grades of similar quality.

(Updates with signing of HOA, MOU in paragraphs 8 and 9)