Jakarta, March 10 (Antara) - As of this week, the government has not yet decided whether to develop an onshore or offshore liquefied natural gas refinery at the Abadi natural gas field, Masela Block, in Arafura Sea, Maluku Province.
President Joko Widodo (Jokowi) has not decided upon a location for the LNG refinery plant, following controversies over the economics and costs involved in the construction of an onshore or offshore refinery.
"There is no final figure yet. We are still waiting for the calculation of real and accurate figures for the construction costs of the Masela gas refinery, both onshore and offshore," Amien Sunaryadi, the head of the Upstream Oil and Gas Regulator (SKK Migas) said following a hearing with the Regional Representative Council (DPD) on Monday (March 7).
There have been differences in construction cost calculations between Coordinating Minister for Maritime Affairs Rizal Ramli and project contractor Inpex Corp of Japan and its partner, Royal Dutch Shell.
Rizal Ramli said, based on his study, the cost of developing an onshore refinery would be some US$16 billion, while the cost for developing it offshore would reach US$22 billion.
He added that the calculation was far different from the cost estimates provided by Japan's Inpex Corp and Shell, which are set at US$14.8 billion for the offshore and US$19.3 billion for the onshore refinery.
Due to such differences, President Jokowi has not decided which refinery scheme the government would undertake for the Masela Block of the Abadi gas field in Maluku Province.
SKK Migas Head Amien Sunaryadi said that even though the calculation of the cost for the gas refinery has not been finalized, his staff was convinced that the offshore scheme is more economical than the onshore plan.
"Although the calculations are not yet final, we are assured that the cost for the construction offshore will be lower and more economical than onshore," he said Monday.
Amien also explained the data on the calculation of cost components, materials and other factors in the development of an offshore gas refinery. Based on that data, Amien said the development of an offshore refinery would cost some US$14.8 billion.
On the other hand, funds needed to build an onshore refinery based on the SKK Migas data reached US$19.3 billion.
Amien said the US$14.8 billion figure for offshore and US$19.3 billion for onshore development are based upon Class IV estimates, with a deviation that could reach up to 50 percent because the estimate is still in its initial stage.
"The US$14.8 billion and US$19.3 billion are class IV estimates. In engineering, we first make an estimate, and then go to the details. This means that its deviation potential could reach up to 50 percent," noted Amien.
He said that more accurate costs could be determined only after a new Plan of Development (PoD) has been submitted by the Masela Block contractor, Inpex, and approved by the government.
"However, the calculation made after the PoD approval could not be guaranteed to be accurate. It is still classified as a Class II estimate. It still could deviate by 20 - 30 percent. When the tender is requested, bidders will calculate and offer estimates of a Class I estimate, with a deviation potential of about 10 percent," he said.
If the contract for the construction of the gas refinery plant is already signed, he went on, the cost will not swell because the figure has been clearly mentioned in the contract.
He further expressed confidence that the costs will not increase if the Masela refinery is built offshore.
"After all, Inpex and Shell already learnt lessons from the development of many floating refinery plants throughout the world, including in Australia, so the costs will not swell," Amien said.
He noted that if the government decided to develop the refinery plant onshore, it would disrupt the operation of Masela Block. Further, Inpex and Shell will recalculate the refinery cost and submit a PoD revision, which will delay the production schedule.
"If (the PoD) is revised, there will be delays, including the production schedule. The contractor will also suffer a loss because its costs will increase, such as their employee wages. When its PoD was approved in 2010, Inpx was optimistic and increased its employees from 200 to 500. If this is delayed, the company will have to bear the cost of idle personnel for three years," he said.
Coordinating Minister for Maritime Affairs Rizal Ramli disclosed last month that the government had decided to develop the Masela refinery onshore.
"The decision was taken after a thorough and careful study of inputs from various parties. The consideration behind it was its multiplier effects and acceleration of economic development of Maluku in particular and the eastern Indonesian region in general," he said in a written statement on February 22.
Rizal Ramli said the decision was in line with President Joko Widodo's directives to maintain consistency in the implementation of the constitution which states that natural resources must be used for the benefit of the people.
President Jokowi, as he is also called, has frequently stated that exploitation of the gas field in Masela must not only be for the purpose of foreign exchange earnings but must also be used as an engine to accelerate economic development in Maluku and eastern Indonesian region, he said.
"This is why the President wished that the development of the refinery should be onshore. He paid much attention to its benefits and multiplier effects which are much bigger than if the refinery is built offshore. With the refinery being onshore, it may lead to emergence of fertilizer and petrochemical industries. We may develop a new city like Balikpapan (East Kalimantan) in Selaru, with the refinery about 90 kilometers from Masela Block," he said.
Rizal Ramli said the government has learned from its experience when the offshore refinery in Prelud, Australia, was developed. It suffered delays and the cost swelled, reaching US$12.6 billion while its capacity is only 3.6 million tons a year, just 48 percent of the capacity of Masela Block which is 7.5 million tons a year.
As per his calculations, he said, if the refinery is built offshore, Indonesia would only receive an income of US$2.52 billion a year from the sale of LNG, based upon an assumed price of oil at US$60 per barrel.
On the other hand, if the refinery is built onshore, part of the LNG could be used for petrochemical and fertilizer industries. "This way, the state could earn an income of up to US$6.5 billion a year," the minister said.
Regarding fears that Inpex would exit from the Masela Block development project due to such a decision, Rizal Ramli said it was an exaggeration. Inpex has spent years and invested around US$2 billion in the project.
He said he believed the company would not abandon Masela Block that has reserves of more than 20 trillion cubic feet of gas. Based on an assumed production of 1.2 million cubic feet per day, the reserves would be used for up to 70 years.***3***(A014/INE)
(T.A014/A/BESSR/A. Abdussalam) 10-03-2016 19:20:0 |
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