The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Ratings update: Inpex, Indonesia

The Abadi LNG project, which is being developed amidst growing resource nationalism in Indonesia ahead of the presidential election, may be exposed to further delays due to persistent regulatory and legal uncertainty.

Key developments

  • If developed, the $15bn Abadi LNG project, owned by Inpex (65%) and Shell (35%), is set to be one of the largest LNG projects in the country. Production, expected at 9.5 million tonnes of LNG per year, is due to start in 2027. The project is already years behind schedule due to government opposition to Inpex’s initial plans to build the project offshore. Inpex has now moved to an onshore development in line with the government’s request.
  • Resource nationalism in Indonesia has been growing over recent years. The government of President Joko Widodo (‘Jokowi’) has repatriated some of Indonesia’s key resource assets, including Freeport’s Grasberg mine, Chevron’s Rokan oil field and the Mahakam gas block, the country’s largest producing LNG asset, formerly owned in part by Inpex itself. Operators in the country have also had longstanding complaints over the country’s legal and regulatory framework.
  • Presidential elections in April could see a further turn for the worse. Jokowi – the reform-minded moderate, who has taken a tough stance to stave off hard-line rivals – is currently in the lead. He is running against Prabowo Subianto, a former army general and self-proclaimed nationalist, who has strong ties to Indonesia’s establishment.

Evaluation

  • The Abadi LNG project has already faced strong pressures to deliver greater local benefits. Despite its potential economic contribution, the project has faced significant delays due to the government’s demand that it be moved onshore, on the grounds that this would bring greater benefits to the underdeveloped Maluku province and increase central government revenues. Inpex has changed its development plans despite higher costs, but the project will continue to be exposed to a number of political and regulatory risks.
  • Pressures may mount in the run-up to the election as both presidential candidates have made aggressive statements against the resource industry. The outcome of the vote will have a significant impact on Indonesia’s resource sector. President Jokowi – despite boasting about his nationalist moves on the campaign trail – came into power on a reformist platform and has signalled that he might be open to implementing more pragmatic pro-business policies. Subianto’s rhetoric, on the other hand, indicates that he would be willing to take more assertive nationalist measures. His victory could further deteriorate the country’s business environment.
  • Inpex-Shell, like other international investors in Indonesia, may face pressure to cede a stake to state-owned Pertamina. The JV is particularly exposed because its contract is due to expire only one year after Abadi’s expected start of production, meaning that any further delays would strengthen the government’s bargaining power in contract renegotiations. Furthermore, Inpex may be expected to supply some of its gas to the domestic market in light of rising energy demand in the country. It will also have to navigate potential predatory behaviour on the part of the regional officials in Maluku province, who have allegedly demanded a stake in the project’s revenue stream.
  • Operators in Indonesia such as Inpex will face persistent regulatory instability regardless of the election outcome. The country’s long-overdue oil and gas reforms are likely to be pushed back as government officials focus on the upcoming election. Various parliamentary revisions, including the establishment of a new oil and gas business entity and regulator, were proposed in December 2018, but have not yet progressed. Uncertainty around the country’s oil and gas legislation will make it difficult for international companies to plan for the future and make informed decisions about the commercial viability of their projects.

 

This article uses Critical Resource’s LicenseSecure™ model to assess the likely level of political and stakeholder risk. Our updates provide a rapid overview of new or updated ratings in our database, with a focus on projects in the news. Please note that these ratings updates are provisional, based in part on open source analysis and are not from client projects. Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.

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