Abadi LNG's Future in Question After Indonesia Changes Location

  • Widodo wants $14 billion terminal built on Saumlaki island
  • Delay comes as LNG prices have fallen 42% in past year

An Indonesian government ruling on the location of a proposed $14 billion liquefied natural gas project has raised questions about its viability amid a global price crash.

Indonesia wants Japan’s Inpex Corp. to build its Abadi LNG facility on a remote eastern island to help the local economy, instead of offshore as the company planned. The decision means Inpex will have to submit a new development plan to the government, possibly delaying its investment decision by four years to 2022. An Inpex spokesman said the company is still aiming for early start up of the development.

The delay comes in the midst of an oversupplied liquefied natural gas market where prices have fallen 42 percent in the past year, causing buyers to be more picky about entering long-term contracts on which new projects rely. Inpex, which fell 4.2 percent in Tokyo, may abandon the project if the revised project plan adds hundreds of billions of yen to capital costs, the Nikkei reported, without citing anyone. Last month Woodside Petroleum Ltd. scrapped a $40 billion plan for a floating LNG project in Australia.

‘Resource Nationalism’

“As there are so many uncertainties over the project, it would likely be shelved for a long time,” Mikiko Tate, senior analyst at Sumitomo Corporation Global Research Co., said by phone. “Given how the Indonesian government is becoming nationalistic about its natural resources, it’s difficult to make a decision now to move forward the project.”

Inpex fell Tuesday to 778 yen a share, the lowest level since at least 2006. The company declined to comment on how the change would alter the schedule and cost of the project.

“We will consider how to optimally develop Abadi gas field as was decided upon by the Indonesian government,” Usman Slamet, Inpex Indonesia’s spokesman, said in text messages.

Inpex signed an agreement with the Indonesian government in 1998 to develop the offshore Masela block in the Abadi gas field. The company has a 65 percent stake and Royal Dutch Shell Plc the rest. In 2010, the government approved the company’s plan to build a 2.5 million-ton a-year floating LNG facility to ship the fuel. Inpex submitted its revised plan in September, proposing to triple the capacity to 7.5 million tons.

Widodo’s Plan

Indonesian President Joko Widodo said March 23 that he wanted the plant built on Saumlaki, an island of about 150,000 people more than 1,100 miles (1,770 kilometers) east of Bali and 310 miles north of Australia’s Darwin. That would benefit the local economy, rather than a floating terminal, he said.

If the revised plan had been accepted, Inpex could have made an investment decision in 2018, Amien Sunaryadi, head of SKK Migas, Indonesia’s regulator, said in February. An onshore plant requires a new development plan and would likely delay the company’s decision until 2022. Construction would take four or five years, he said.

“The Indonesian government’s decision is a blow to the developers,” said James Taverner, a Tokyo-based energy analyst with IHS Inc. “At best, the project will be delayed while the developers reconsider their plan. But in a well-supplied global LNG market with far more projects competing to go forward than there is demand, the window of opportunity is narrow.”

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