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GLNG COMMENTARY GLNG

Indonesia’s potential

reversal to LNG importer

COMMENTARY WITH the likes of Australia, Qatar and the US 1997 Asian financial crisis. This has meant less
now by far the world’s biggest LNG exporters, it funding for increasing recovery at existing fields,
is hard to imagine that this was a title once held, and less for exploring for new ones.
in 1990, by Indonesia. That year the country There are other issues. Even projects that have
delivered 20.35mn tonnes of the super-cooled managed to secure the investment they need can
gas to the global market, accounting for 38.4% face an uphill struggle to overcome regulation.
of overall trade. However, years of declining One case in point is the Masela block in the
sales meant that in 2021 Indonesia had dropped Arafura Sea, which Japan’s Inpex secured rights
to eighth place among exporters, and in the not to in 1998, subsequently passing a 35% interest
so far future it looks poised to become a net to Shell. As it currently stands, the $20bn pro-
importer. ject will involve the development of the 359 bcm
Indonesia’s diminishing role as an LNG sup- Abadi gas field, underpinning a 9.5mn tonne per
plier is partly the result of government efforts to year (tpy) LNG terminal and gas sales to state
prioritise domestic gas needs. Instead of export- power firm PT PLN.
ing more gas, the country has tried to use more of Masela is clearly valuable, but has suffered
it to manufacture products for export. It has also from a series of setbacks. The government has
used more gas to boost oil production, which been wrangling for years with the developers to
has fallen 3.1% on average annually over the push for an onshore LNG plant. Their original
past decade. But primarily it is simply the conse- preference had been an offshore terminal. Shell
quence of declining gas output, which dropped subsequently opted to withdraw from the pro-
from 82.7bn cubic metres in 2011 to 59.3 bcm ject in 2020, but in a telling sign, has not yet been
in 2021. As a result, Indonesian LNG exports able to divest its stake, in part because Jakarta is
almost halved over the same period, arriving at eager to see domestic investors involved. Placing
14.6 bcm, according to BP’s statistics. another burden on the project, Indonesia now
wants to add costly carbon capture and storage
Investment hurdles equipment.
Another question is why natural gas production In its latest attempt to revive the project,
has declined so sharply. This is partly a result Japan’s government in July offered financing to
of constrained private, and in particular, inter- support a bid by Indonesia’s PT Pertamina or
national investment in the country’s gas sector. Indonesia’s sovereign wealth fund to buy out
Investment in Indonesia has long been prob- Shell. It remains to be seen how this will play out,
lematic owing to the country’s opaque legal and but Masela has already fallen three years behind
regulatory environment, and it has never truly schedule, with Inpex now predicting its launch
recovered from the unilateral contract changes in the early 2030s.
that were imposed by the government during the

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