Indonesia Urges Scrapping of Costly Floating LNG Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--In an attempt to reduce costs, the Indonesian government is reportedly urging Japanese petroleum and natural gas company Inpex Corporation (TYO:1605) (Tokyo) to consider building an onshore liquefied natural gas (LNG) terminal in Saumlaki in the Tanimbar Islands, rather than the proposed floating LNG-processing facility.

Inpex is the operator of the Masela gas block in the Timor Sea, which has estimated reserves of up to 10 trillion cubic feet of natural gas. In January of this year, the Indonesian government tentatively agreed to Inpex's plans to build a floating offshore LNG terminal at a cost of $19.6 billion and a capacity of 4.5 million tons to handle gas from the Masela block.

Now the Indonesian government, after studying alternatives to the construction of the more expensive offshore floating LNG facility, is proposing that Inpex build an onshore facility in Saumlaki, which is located about 150 kilometers from the Masela block. Government research now indicates that it may be possible to connect the Masela project to an onshore terminal, despite suggestions that the water depth, previously thought to be approximately 2,500 meters, was too deep for such a connection.

The water depth in the vicinity of the Masela block is between 400 and 800 meters, but the Timor Trough, an undersea valley, lies between the gas field and the Tanimbar Islands. More recent research has now convinced the Indonesian government that it may be possible to use flexible pipes to follow the contours of the seabed in order to make the connection to an onshore facility in a similar manner to projects successfully installed in Brazil, Norway and India.

Government estimates put the cost of an onshore terminal at about one quarter of the cost of a floating terminal, with the added advantage of a much reduced construction time. The Indonesian Energy and Mineral Resources Department will conclude a study on the feasibility of the onshore option within a few months and expects that such a facility could be brought online by 2013 or 2014. This compares favorably with the projected completion of the floating terminal by 2016.

Inpex is currently working on the front-end engineering and design (FEED) stage of the floating facility, with a view to offering the engineering, procurement and construction contract (EPC) in 2011. The facility is planned to be 500 meters in length, with a beam of 82 meters. It will include living quarters for the crew and a utility area for power and steam generation at the stern, with LNG liquefaction units and acid-gas removal units in the process area of the facility.

Indonesia has been pushing oil and gas companies to increase exploration and production, as production from its older fields has begun to tail off and the country would like to reduce its reliance on imported oil and gas. Currently, Indonesia is the third largest LNG exporter in the world, following Qatar and Malaysia, and is concentrating more on natural gas as an alternative to oil because of the high prices and falling domestic supply of oil.

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