The Masela Block is an important key to replace the declining gas production of old fields
Indonesia has the potential to run short of natural gas if the Masela Block gas project does not operate as scheduled by 2027. This giant project is an important key to replacing the declining gas production of old fields.
Secretary General of the National Energy Council (Sekjen DEN) Djoko Siswanto said the Masela Block gas project would improve energy security.
“If there is no Masela, for example, we cannot produce, we will lack gas in 2027,” said Djoko in the Masela Block webinar in the Economic Development of the Maluku Community, Wednesday (8/12).
The government currently has Gas Purchase Agreements alias PJBG contracts for fertilizer, electricity, industry, and others. However, these contracts have the potential to be unfulfilled by decreasing gas production from the existing fields. As for the operation of the Masela Block, according to him, the government hopes that the existing domestic contracts can be continued.
“If it has been fulfilled, we will export it. So 65 percent of our gas production is used domestically, the remaining 35 percent is exported,” said Djoko.
There are at least seven potential companies to buy gas from the Masela Block, including PGN, PLN, Pupuk Indonesia, China National Offshore Oil Corporation (CNOOC), CPC Corporation, Sinopec, and Kyushu Electric.
According to Djoko, the operation of the Masela Block will also improve regional revenues. This is because there is a 10% Participating Interest (PI) distribution, in addition to oil and gas revenue sharing.
“Not only can it improve regional revenues, but also the regional economy by absorbing labor, transferring technology, including for the procurement of goods and services,” said Djoko.
However, he stressed that the development of this block can only be carried out if the buyers have signed a GSA with a minimum contract volume of 80% of production capacity. Without a buyer, there is no guaranteed return on investment.
“So, for example, 10 MMSCFD, 100 MMSCFD, this investment cannot be returned, a minimum of 80% has been contracted,” he said.
According to Djoko, gas prices are the key to getting serious gas buyers. The government itself has provided many incentives to reduce gas prices so that buyers do not object.
“Find a buyer first, who is certain, he wants what price when it has been agreed and the project is not yet economical, the contractor can ask for a split back to the government, if it is not done yet economically, other ways need to be found,” he said.
The government is still looking for a replacement for Shell Upstream Overseas Ltd in the Masela Block perpetual gas project. In fact, the government has given various incentives for the development of the perpetual gas project.
The incentives that have been given include 50% profit sharing for Inpex until 2055 assuming an investment cost of US$ 20 billion, 80% investment credit in offshore areas and 50% in onshore areas, and internal rate return (IRR) which reaches 15%.
SKK Migas Deputy Operations Julius Wiratno previously said he could not confirm when the divestment process would be completed. He also did not know for certain who the potential Inpex partners were interested in replacing Shell’s position in the Masela Block.
“Discussions are still going tough. Now there are prospective bidders and they are discussing with Shell after seeing the data. But the B to B negotiations are really tough,” he told Katadata.co.id, some time ago.
He said Inpex would continue its activities while waiting for the process of finding new investors in the Masela Block to be completed. Activities include marine geographic exploration survey activities (metocean survey), land acquisition, and administering AMDAL (environmental impact analysis).