BP Plc is studying a fourfold expansion of the $5 billion Tangguh liquefied natural-gas plant in Indonesia as the region’s economic growth surges and Japan raises imports following its nuclear disaster.
The plan is part of a drive by Chief Executive Officer Robert Dudley to replicate the multibillion-dollar projects made by Royal Dutch Shell Plc that generate cash and profits for two decades and beyond, funding growth in other areas. The LNG plant now has two production lines, called “trains” in the industry.
“The space is being prepared in Tangguh for eight trains,” Gde Pradnyana, a Jakarta-based spokesman for the Indonesian energy regulator, known as BPMigas, said in a telephone interview. “You can speculate there are still a lot more reserves to be discovered.”
BP will invest $10 billion in Indonesia in the next decade to boost output at Tangguh, as well as expand into coal-bed methane, Dudley said in May. Indonesia, the world’s second-largest exporter of LNG after Qatar, needs new supply to replace shipments from aging plants in Aceh and Kalimantan provinces.
Tangguh, the most recent LNG project in Indonesia, started shipments in 2009. David Nicholas, a London-based spokesman for Europe’s second-biggest energy company, declined to comment on the eventual size of the plant.
Gas resources for a third unit at Tangguh are “almost confirmed,” Pradnyana said. A decision to build the 3.8 million-ton-a-year train may be made this year, he said, without disclosing how much gas has been discovered for a fourth unit. The plant has two trains with a combined production capacity of 7.6 million metric tons of LNG a year.
“Tangguh expansion could be attractive to BP as a much needed source of LNG growth,” Frank Harris, head of global LNG at Wood Mackenzie Ltd. in Edinburgh, said in an e-mail.
Even so, there will likely be an obligation to sell some of the LNG on the domestic market at below-market rates, Harris said. Moreover, Tangguh’s reliability has come into question because of technical difficulties experienced during the start-up phase, he said.
Indonesia is competing to satisfy demand for LNG from China and India, the world’s fastest-growing major economies. Gas is the least polluting fossil fuel and China, which has 16 of the 20 most-polluted cities in the world, plans to use more of it for power generation.
Chinese gas demand, now about 100 billion cubic meters a year and roughly equal to Germany, may soar to match that of the 27-nation European Union by 2035, according to the International Energy Agency.
Japan, the world’s biggest LNG importer, may consume an additional 12 million tons a year, according to Sanford C. Bernstein & Co., after the earthquake and tsunami in March led to the closure of almost two-thirds of the nation’s 54 reactors.
Bernstein said in an Aug. 20 report that the LNG market will “significantly tighten” over the next three years, boosting gas prices.
North Asia spot LNG prices reached $17 a million British thermal units earlier this month, World Gas Intelligence reported Sept. 21. That’s more than four times the equivalent price for U.S. gas at Henry Hub in Louisiana.
The Tangguh project, in West Papua in the east of Indonesia, has multi-year contracts to supply 2.6 million tons a year to China, 1.15 million tons a year to South Korea and as much as 3.7 million tons annually to Sempra Energy.
The first two Tangguh trains have 12 trillion cubic feet of gas allocated to them, with more than 4 trillion assessed for a third planned unit, Pradnyana said.
The project taps six fields using two unmanned platforms and pipes to take the gas to shore where it is chilled to a liquid at minus 161 degrees Celsius (minus 258 Fahrenheit) to reduce its size and aid transportation.
“We all believe that the resource is there, the potential is there, we just need to do a bit more work,” Pradnyana said when asked about plans for a fourth unit.
Gas consumption in Indonesia, Southeast Asia’s biggest economy, increased 7.8 percent last year, according to BP. The government has passed a law insisting fuel is offered domestically before it can be exported.
Royal Dutch Shell Plc produces LNG in Australia, Brunei, Malaysia, Nigeria, Oman, Qatar and Russia. Shell’s Pearl gas-to-liquids project in Qatar may pay for itself in as little as two years with crude oil at $100 a barrel, according to independent consultant Alex Forbes, founder of Brighton, U.K.-based Forbes Communications Ltd.