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Shell takes another bite of Asian FLNG with Inpex's Abadi project

Shell is set to throw its weight behind Inpex’s proposed multi-billion dollar Abadi floating liquefied natural gas (FLNG) project in Indonesia

The Japanese company has signed a deal to transfer a 30% stake in the Masela block, in the Arafura Sea, to Shell.

Inpex cited Shell's expertise in large-scale offshore gas development and its FLNG experience as factors in the decision to involve the supermajor as a strategic partner. "We have huge risks and we hope to gain a technical advantage from Shell's involvement," said Inpex.

Big brother

The deal will give Inpex tremendous security, said Tony Regan, principal of Singapore-based consultancy Tri-Zen, as the company now has a “big brother” with FLNG technology.

Shell's role in the venture has been rumoured since it suggested in May that it was looking to develop further FLNG projects when it announced a final investment decision (FID) had been taken on the world’s first FLNG project – Prelude, in the Browse basin off Australia, which is due to start-up in 2017.

Inpex aims to start front-end engineering and design for the floater in the first half of next year, slightly later than previously announced. The FLNG production unit will be able to handle 2.5 million tonnes a year (t/y) of LNG and 8,400 barrels a day of condensate. FID is expected by late-2013, with commercial start-up planned for 2018, according to Inpex.

In December, the Indonesian government approved the phase-one development plan under the FLNG concept for a 2.5 million t/y unit. But Inpex wants to add at least another 2 million t/y capacity at an unspecified date – the feasibility study for phase-two expansion of the Abadi project will be conducted in parallel with the first stage development, said the company.

Domestic supply

The Abadi gas/condensate field covers an area of more than 1,000 square km in water depths ranging from 400 to 800 metres. The licence holds an estimated 10 trillion cubic feet of recoverable gas reserves, but has an unusually high carbon dioxide content of around 7%. Inpex said the main target market for the LNG is Japanese buyers, but Indonesia also wants supplies to meet growing domestic demand.

Indonesian upstream regulator BPMigas has been pushing Inpex to set aside more than a third of the output from Masela to supply domestic markets from 2018. Although the production-sharing contract was signed before 2001, meaning Inpex should not be subject to any domestic market obligation for LNG production, the country’s existing regulations demand that the Abadi project allocates 25% of produced gas for domestic use.

The joint venture Inpex Masela – in which Inpex holds 52% and Japan Oil, Gas and Metals National Corporation 48% – will retain a 60% share in the block, with 10% held by EMP Energi Indonesia and 30% by Shell. A spokesman for state-owned Pertamina said yesterday that the national oil company plans to acquire the remaining 10% stake in the block this year, adding that Inpex “welcomed” the plan.

Inpex will continue in its role as operator of the Abadi project and suggested it considers the venture with Shell as just the first project the two companies would work on together. It is possible Shell may use the relationship with Inpex to look for a way into the Japanese-led Ichthys LNG scheme in Northern Australia.

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