Inpex Delays FLNG Project, Cuts Hundreds of Staff

Japanese energy firm Inpex will defer the development of its $15 billion offshore Abadi / Masela LNG project by two years or more, said Indonesian regulatory body SKKMigas on March 16. The final investment decision (FID) will not take place until 2020, pushing first shipment back to 2026 or later.

Inpex has a 65 percent interest in the block, dating back to its acquisition of the lease for exploration in 1998. The firm drilled a series of appraisal wells at the field over the next decade, and in 2010, based on strong results, Inpex proposed developing and deploying a 2.5 mtpa FLNG plant; while Front End Engineering Design was under way for that project, Inpex drilled additional appraisal wells and found that the field's recoverable reserves were substantially larger. In September it submitted a revised plan to SKKMigas, envisioning a much larger 7.5 mtpa FLNG, bigger even than Shell's Prelude, the first and largest of the class. Shell holds the remaining 35 percent of the Abadi / Masela project.

Since the discovery of additional reserves, Indonesia’s government has been debating internally whether to require the creation of on-shore downstream facilities instead of allowing an FLNG deployment, citing additional economic benefits from shoreside construction and from feedstock availability for petrochemical plants. The government has reportedly delayed approval of Inpex' revised proposal for some months due to the continued dispute.

SKKMigas has warned that a change to an onshore project would increase costs and could push the completion date back by a further three years. 

"We are still waiting for a government decision on the revision of the plan of development, and hope there will be a decision as soon as possible," said Usman Slamet, senior communication manager at Inpex Indonesia.

Inpex has informed SKKMigas that it will be cutting its staff in Indonesia by at least 160; the Jakarta Post quoted an SKK official who put the cuts at closer to 300. Shell's engineers on the project have been told to seek work within the company's other units. 

Delays to upstream projects will also increase Indonesia's reliance on natural gas imports, said Edi Saputra, a senior analyst at Wood Mackenzie. He forecast Indonesia's 2016 LNG demand to grow to around 4 million tonnes from 2.5 million tonnes in 2015, and to reach 10 million tonnes in 2023.