Floating Refinery or Land Refinery?

Thursday, 24 December 2015 , 12:13:00 WIB - Economy

An offshore refinery is seen at the Masela Block belonging to Inpex Corporation, at the Arafura Sea, Maluku. (inpex.co.jp)

JAKARTA, GRES.NEWS – The polemic surrounding the liquefaction natural gas (LNG) refinery project at the Masela Block (Arafura Sea, Maluku) continues as the Ministry of Energy and Mineral Resources have not determined whether to opt for a floating or land refinery. The ministry is waiting for the consultant to submit their report.

Energy minister Sudirman Said vows to make a decision this year, saying that the independent consultant Poten and Partner will give their recommendation soon. "We are waiting for their report," he said, Jakarta, Tuesday (22/12).

The Ministry is in debate with the Coordinating Minister for Maritime and Resources Affairs. The Minister for Maritime and Resources Affairs, Rizal Ramli, supports land refinery as it will support the economy of surrounding communities.

He explained that land refinery will create new jobs for the locals and the steel industry will also benefit as the refinery would need steel pipes. "We would benefit more if we build downstream factories, such as fertilizers and petrochemical," he said.

Ramli also said that the government would only need to extend the pipes if new gas reserves are found between the Masela and Aru blocks.

Meanwhile, if the government opts for a floating refinery, they would need to build another refinery is the gas reserves are discovered.

The Masela Block contains abundant reserves with the potential reaching 10 trillion cubic feet (TFC). "The potential at the Masela Block is huge, far bigger than the Kangean Block. Within ten years, we may have to build a bigger refinery than the one in Bontang and Balikpapan," he said.

Rizal acknowledges that Sheel, the company interested to build a floating power plant at the block, is offering an attractive proposal with the Investment Rate Return (IRR) reaching 15 percent and potential income of up to US43.8 billion. Floating refinery is relatively a new technology.

However, he also pointed out the fact that the development is not cheap, reaching US$19.3 billion or about Rp270.2 trillion, compare this to building a land refinery in Aru Island that would only cost US$14.6 billion-US$15 billion. Not to forget the multiplier effect that land refineries offer.

Thje participating interest (PI) in the Masela Block project is 60 percent Inpex Corporation, 30 percent Shell Upstream Overseas Services and ten percent PT Energi Mega Persada (EMP) Energi Indonesia.

INPEX WANT CONTRACT EXTENSION - Inpex Corporation, as the biggest shareholder (60 percent) in the Masela Block, has requested an early contract extension. The company’s contract ends in 2028 and Inpex wants an extension up to 2048.

Inpex explained that it wants to invest billions of US dollars in the block, but the fact that its contract ends in 2028 is blocking the investment’s execution.

Nonetheless, Rizal reminded that it would be too early to extend the contract anytime soon as the Law No.22/2001 on Oil and Gas stipulates mining contracts can only be extended two years before they expire. (Agus Irawan/dtc)