Japanese Companies Invest $18 Billion in Indonesia's Oil and Gas Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--Japan is keen to strengthen its trade relations with Indonesia in the oil and gas sector. Several Japanese companies have plans to invest in liquefied natural gas (LNG) projects in the country, which is among the world's largest exporters of LNG.

Inpex Holdings Incorporated (TYO:1605) (Tokyo), Japan's largest oil and gas exploration company, will build a floating LNG plant to develop gas from the Masela Block off the island of Arafura in the Timor Sea. Construction of the 4.5 million-ton-per-year plant, which involves an investment of $14 billion, is expected to start operating by 2015. On completion, it will be Asia's first offshore LNG terminal. The $11.2 billion Inpex group holds a 100% stake in the Masela Block, and Indonesia had made the construction of the plant a prerequisite for the development of the block.

In another recent development, the $115.5 million Itochu Corporation (TYO:8001) (Osaka-shi, Japan) has announced that it has set aside $4 billion for investments in six projects in Indonesia, including an LNG-receiving terminal at Indramayu, West Java. The other projects being planned include a geothermal project in North Sumatra and a railway track for transporting coal in Central Kalimantan. Earlier this year, Indonesia's government-owned P.T. Pertamina (Jakarta) signed agreements of $6.5 billion in oil refinery and LNG projects with various Japanese companies. Pertamina and Mitsui Oil Exploration Company Limited (Tokyo) will jointly work on a $1.9 billion project to expand the capacity of the Cilacap refinery in Central Java from the current 348,000 barrels per day (BBL/d) of crude oil to 410,000 BBL/d. Itochu Corporation will join Pertamina in expanding the processing capacity of the Balikpapan and Balongan refineries to 280,000 and 250,000 barrels per year, respectively, at a combined cost of $3.2 million. Petramina is also set to build a $1.4 billion LNG plant at Senoro in Central Sulawesi in cooperation with Mitsubishi Heavy Industries Limited (TYO:7011) (Tokyo). P.T. Medco Energi Internasional Tbk is also a partner in this project, which is expected to produce about 2 million tons per year of gas for export to Japan.

Indonesia has also finalized an agreement with Tokyo Gas Company Limited (TYO:9531) (Tokyo) for the sale of LNG from the Tangguh gas project at a cost of $18 per million British thermal units.

Indonesia is the largest exporter of LNG to Japan, and provides approximately 22% of the gas required by the Japanese market. Japan is the largest foreign investor in Indonesia, and the two nations have strong trade relations, particularly in the energy and manufacturing sectors. The total value of bilateral trade between Japan and Indonesia is estimated at $30.1 billion. The signing of the historic economic partnership agreement in July this year is expected to resolve several issues related to trade tariffs, labor migration and investment, thus strengthening the trade relations between the two countries.

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