Wood Mackenzie comments on INPEX HOA

Wood Mackenzie research director Andrew Harwood, noted the following:

• The HOA formalises the recent outline agreement between the Government of Indonesia and INPEX on the Masela development project. After a number of setbacks in recent years, this is a positive step for the project, which is of national strategic importance due to its size and potential contribution to the country’s oil and gas supply outlook.
• The HOA will provide further details of the development concept, schedule, capital investment and PSC terms under which the Abadi field will be developed. The proposed PSC terms have not been disclosed, but Wood Mackenzie understands that the government and INPEX have agreed terms that improve the economic viability of the project.
• Globally, Wood Mackenzie estimates that more than 90 million tpy of new LNG supply capacity will reach a final investment decision (FID) during the 2019 – 2020 period. The consultancy claims that this will lead to a wave of new investment, with more than US$200 billion to be spent on LNG developments between now and 2025. With this increased level of activity, Harwood claims that LNG operators will be under pressure to avoid the cost and schedule overruns that have historically been prominent in the industry. The projects with the best chance of taking FID will be those with the lowest breakeven costs, those that have secured long-term buyers or projects of strategic importance to key stakeholders.
• Harwood also claims that the project faces two main risks. Firstly, with Abadi set to take FID by 2022, the project partners will have to handle crowded construction and engineering markets. Secondly, the project will be brought onstream around 2027, which may be a softer environment for marketing LNG offtake to buyers as other LNG supply will have already entered the market by then.
• Finally, INPEX has increased output from its first operated LNG project, Ichthys, in Australia, and will have strong cash flows to carry out a second LNG project.

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