WoodMac: Abadi LNG revised plan approved. Challenges still lie ahead

Location of Abadi project; Image courtesy of Inpex

Japan’s Inpex Corporation has received approval from Indonesian authorities for the revised Plan of Development for the Abadi LNG project but challenges still lie ahead.

Inpex (operator, 65 percent) and Shell (35 percent) will develop Abadi via an offshore production facility and a 9.5 million tonnes per annum (mmpta) onshore LNG plant, at an estimated cost of $20 billion.

The project involves developing the Abadi gas field in the Masela Block located in the Arafura Sea in Indonesia.

Next step for Inpex will be environmental and engineering studies ahead of FID. Although the partners received approval from Indonesia’s Ministry of Energy and Mineral Resources last week, consultancy group Wood Mackenzie believes the development still faces several challenges.

Firstly, the partners will face a crowded EPC market due to the record number of LNG projects vying for sanction over the same period. Secondly, Inpex will have to line up buyers for 9.5 mpta of LNG as competing sources of supply entering the market.

Finally, the operator must navigate the challenge of the remote onshore facility and laying 150 kilometers of pipeline.

Wood Mackenzie’s research director Andrew Harwood said: “The revised plan of development details amendments to the Masela production sharing contract (PSC) to improve the commercial viability of the project, including a 20-year extension, a further seven years to compensate previous delays, and enhanced fiscal terms. Inpex aims to take an FID within three years, and we expect first gas in 2028.

In addition to the PSC extension, the government has agreed to an enhanced contractor profit split, investment credit, and indirect tax exemptions, which will provide for a post-tax contractor profit share of 50 percent.

For Indonesia, making progress on Abadi is critical. Domestic LNG demand is expected to rise to 13 mtpa by 2030 as gas demand grows and production declines.

Abadi is also crucial to the next phase of growth for Inpex, post-Ichthys. At peak, we estimate Abadi to contribute 180,000 boepd – based on working interest – towards Inpex’s ambitious long-term production target of 1 million boepd.”

WoodMac also stated that, despite rumors surfacing that Shell was seeking to exit the project, an exit now looked unlikely at least until the project got closer to an investment sanction.

It is worth reminding that Inpex and the government of Indonesia agreed on several strategic points in May to enable the development of the field. In June, Inpex signed an agreement with Indonesian authorities regarding basic principles of a Plan of Development for the Abadi LNG Project. The revised plan was submitted later that month.