Demand to process gas onshore appears economically unviable
A venture
by Indonesia to develop one of the world’s potentially biggest gas fields
appears to have foundered, at least temporarily, on the rocks of economic
nationalism that flies directly in the face of President Joko Widodo’s
ambitions to open the country to investment.
While the
president is telling the world and Indonesians the country is “open for
investment,” the government is zig-zagging on the huge gas project,
backtracking and creating delays. The Minister of Energy and Mineral Resources,
Sudirman Said, is pushing the contract while the Coordinating Maritime
Minister, Rizal Ramli, apparently is applying the brakes.
The
project is the Masela gas block, located to the east of Timor Island and
Darwin, Australia. It is being developed by Inpex, Japan’s largest oil and gas
developer, and Shell Corporation. Inpex holds 65 percent of the project and
Shell 35 percent. If the US$14-19 billion project goes ahead, it is
likely to become the biggest deep-water gas project in the country, with
reserves estimated at 10 trillion cubic feet of gas although some estimates say
the reserves could, on full exploration, reach as high as 40 trillion cu ft.
The
consortium has plans for a new floating liquefied natural gas platform at the
site. However, nationalists have stepped in to demand that the processing plant
be located onshore, an impossibility because of a 3,500 meter deep trench that
would make it unfeasible to pipe the gas to shore. The cost of the onshore
terminal, estimated at as much as US$19 billion, would render it economically
unviable.
As with a
number of other projects in recent years, nationalist rhetoric seems to be covering
for special interests wanting a piece of the action in construction of the
onshore plant. That has stopped the project, which would earn the country
billions in foreign exchange if it were to go ahead. Officials say it
would make more sense to pump the gas 400 km. to the LNG processing terminal in
Darwin, Australia.
In August
of 2014, Jokowi, as the president is known, dramatically reshuffled his
cabinet, getting rid of nationalists and appointing technocrats and reformers
to replace placeholders. But one of those appointed to the cabinet was Rizal
Ramli, who immediately began asking why the regulator SSKMigas and Sudirman had
approved the capacity of the floating gas terminal proposed by Inpex. Ramli has
insisted the gas be piped to a proposed terminal 170 km. northeast of the gas
field.
Although
a New York-based consultancy brought in by Ramli to study the project agreed
that the floating terminal is the most viable, he continues to delay it.
“There
are many reasons why it should be floating,” said a western business source.
“The whole project may collapse because the idiot nationalists have insisted it
be onshore. It will cost the Indonesian treasury billions.”
Economic
nationalism is a tide that Jokowi has been fighting since the day he came into office,
with many top government officials insisting Indonesia would benefit more by
taking over the management of its own resources. That has resulted in billions
of dollars of lost opportunity that Jokowi and Sudirman Said have sought to
reverse.
Since his
cabinet reshuffle last August, Jokowi has rolled out a continuing series of
economic reforms culminating on Feb. 10 with the details of a sweeping plan he
called a “big bang” to open nearly 50 sectors of the economy to foreign
investment that is designed to ease investment rules in e-commerce, retail,
health care and moviemaking.
Nine new
packages have been made public since a Cabinet meeting in Bogor shortly after
the reshuffle, cutting red tape, removing obstacles and opening up for
investment. The sweeping changes in the latest package, the 10th in the series,
are aimed at dramatically pruning the so-called ‘Negative Investment List” that
keeps out investment by foreign interests.
On
Feb.16, Sudirman told reporters the government needs to renew its mineral ore
export ban policy, which threw global bauxite and nickel supply lines into
chaos. As with the demand that natural gas be processed on shore, the
country’s 2009 mining law spurred implementing regulations demanding that ores
be processed through domestic smelters, which national and international mining
companies found impossible, partly because there is not sufficient electricity
near mining sites and because shipping the raw ore to sites where there is
sufficient electricity would be prohibitively expensive. In other cases there
is a global oversupply of smelting capacity.
The law
would need to be amended or rewritten to stop the ban. It is already on the
legislative calendar in the House of Representatives, according to press
reports. Thus decisions like the one over the gas field keep bubbling up from
below despite Jokowi’s best efforts to shortstop them.
Most of
the obstacles have occurred in the lucrative extractive industries including
oil and gas and mining. Freeport McMoRan, the Phoenix, Arizona mining company
which operates the Grasburg Mine, the world’s biggest copper and gold mine in
Papua, is being forced to divest 20 percent of its shares to local investors,
which kicked off a scandal in which the speaker of Indonesia’s House of Representatives,
Setya Novanto, was forced to resign on charges he appeared to use the names of
Jokowi and Vice President Jusuf Kalla in requesting a bribe of 20 percent of
the shares in the mining operation, which must be divested under the terms of
Freeport’s mining contract of work.
Although
Jokowi has told reporters he has faced no political backlash or resistance to
the steps he has taken so far, the gas field decision belies that.
As
international growth has slowed, hobbling Indonesia’s exports, particularly
coal and other extractive industries, and with domestic consumption
contracting, as occurs in most countries, protectionism gains ascendency.
Jokowi and his reformers are doing their best to slow it against skeptics
preaching that the bad times are due to foreigners raiding the national
assets. The global oil and gas markets are facing the biggest slide in
prices in decades, contributing to that malaise. Asia Times
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