REPUBLIKA.CO, JAKARTA -- President Joko Widodo is yet to arrive at a decision on the Masela Block refinery development project, Presidential spokesman Johan Budi stated here on Tuesday.
"The president is still evaluating all aspects of the Masela project, taking into consideration its scale and complexity. The decision must be made carefully," he noted in a press release received here.
Budi said the president would consider various aspects not only restricted to commercial but also technical as well as social, cultural, economic, and local development before he reaches a decision.
Budi revealed that the president had heard various inputs and understood the arguments of all parties on whether the refinery should be built onshore or offshore.
The president's key concern is how the people in South Maluku and the entire Maluku region could enjoy the maximum benefits from the gas refinery project and also how it can maximally benefit the state, Budi explained.
Coordinating Minister for Maritime Affairs Rizal Ramli disclosed here on Monday that the government had decided to develop an onshore liquefied natural gas (LNG) refinery for processing gas from the Masela Block in Maluku.
"The decision was taken after a thorough and careful study of inputs from various parties. The consideration behind it was its multiplier effects and the acceleration of economic development in Maluku, in particular, and the eastern Indonesian region, in general," he noted in a written statement.
Ramli noted that the decision was in line with President Widodo's directives to maintain consistency in the implementation of the constitution, which states that natural resources must be used for the benefit of the people.
The head of state has often reiterated that exploitation of the gas field in Masela must not only be for earning foreign exchange but must also be used as an engine to accelerate economic development in Maluku and the eastern Indonesian region, he emphasized.
"This is why the president is keen that the refinery should be developed onshore. He has paid significant attention to its benefits and multiplier effects, which are much bigger than if the refinery is built offshore. With the refinery being built onshore, it may lead to the emergence of fertilizer and petrochemical industries. We may develop a new city such as Balikpapan (East Kalimantan) in Selaru, with the refinery some 90 kilometers from the Masela Block," he remarked.
Ramli said that on the basis of his study, the cost of developing an onshore refinery would be some US$16 billion, while an offshore refinery would cost US$22 billion to build.
He said the calculation was far different from the cost estimates collated by Inpex and Shell, which are only US$14.8 billion for the offshore development and US$19.3 billion for an onshore refinery.
"Inpex and Shell have overstated the cost of building an onshore refinery while reducing the cost of building a refinery offshore. To check the validity of their claims, we have challenged their estimates," he affirmed.
The minister said the challenge was that if the cost of building an offshore refinery was found to be more than US$14.8 billion, then Inpex and Shell must be held responsible for the excess cost, and they would not be allowed to make claims for cost recovery.
"The fact is that Inpex will not dare to pick up the gauntlet. This proves that they themselves are not confident of their estimates," he pointed out.
Ramli stated that the government had learnt from its experience when the offshore refinery was being developed in Prelud, Australia. It suffered delays and the cost swelled, reaching US$12.6 billion, while its capacity is only 3.6 million tons a year, just 48 percent of the capacity of the Masela Block, which is 7.5 million tons a year.
According to his calculations, he noted that if the refinery is built offshore, Indonesia would only earn an income of US$2.52 billion a year from the sale of LNG, based on an assumed oil price of US$60 per barrel.
On the other hand, if the refinery is built onshore, part of the LNG sales could be used for developing petrochemical and fertilizer industries.
"This way, the state could earn an income of up to US$6.5 billion a year," the minister pointed out.
Regarding fears that Inpex would exit from the Masela Block development project due to such a decision, Ramli said it was an exaggeration.
He said Inpex has spent years and invested around US$2 billion in the project.
The minister expressed belief that the company would not abandon the Masela Block, which has reserves of more than 20 trillion cubic feet of gas.
Based on an assumed production of 1.2 million cubic feet per day, the reserves would be used for up to seven decades.
Ramli believed that if the investor from Japan actually opted to exit, investors from other countries would want to continue.
"The Indonesian government respects the long and strategic relationship with Japan, but we also understand Japan's need for a reliable and long-term energy source. We believe Inpex will have an interest in the development of an onshore refinery, which is far cheaper, and will benefit Indonesia and Japan," he added.
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