MOSCOW (MRC) -- Oil major Royal Dutch Shell is in talks to withdraw from Indonesia's Masela block and is looking for a buyer, which could either be Japan's Inpex which is the operator of the development with a majority interest, or another interested party, Indonesian upstream regulator SKK Migas' operations deputy Julius Wiratno told S&P Global Platts on July 6.
Shell's potential exit from the Masela block, which includes an offshore gas development and the Abadi LNG terminal, would follow several international oil companies like BP and Chevron which have pulled out of some of Indonesia's largest upstream projects in recent years due to resource nationalism or poor project economics, or both.
"The company (Shell) is in the process of finding a partner to take over its participating interest in the block," Wiratno said. "They are currently in discussions on a B2B (business to business) basis with Inpex and potential partners," he added.
Wiratno said Inpex will likely continue to control the Masela project, either by itself or along with other partners. "It depends on the negotiations," he added.
Inpex is the operator of the Masela block with a 65% interest and Shell holds the remaining 35%. A Shell spokeswoman said the company does not comment on portfolio activity. Inpex did not immediately respond to queries that were sent out of office hours on July 6.
On June 30, Shell said it would take a post-tax impairment charge of between USD15 billion and USD22 billion in the second quarter. Out of this USD8 billion to USD9 billion would be in its integrated gas business, mainly in its Queensland and Prelude projects in Australia, and USD4 billion to USD6 billion in the upstream segment largely in Brazil and North American shale.
As oil majors cut the value of their oil and gas assets, reshuffle global portfolios and slash capital expenditure to ride through the pandemic, analysts said they are unlikely to commit to big-ticket, long-gestation projects in a significant way.
Additionally, regions like Indonesia are also unlikely to sustain international E&P investment unless their production sharing contracts are extremely attractive and project approvals are less bureaucratic.
The Masela block, for which the latest plan was to produce 9.5 million mt/year of LNG and 35,000 b/d condensate, has been the subject of disagreements between the government and project owners for several years.
The initial project plan involved a floating LNG plant scaled up from 2.5 million mt/year to 7.5 million mt/year, but the Indonesian government then insisted on an onshore LNG terminal that would provide more local employment, although the project partners opposed a more expensive and time-consuming onshore project.
Eventually, the companies agreed to an onshore terminal and the Indonesian government approved the revised development plan for Abadi LNG. Indonesia also approved a 20-year extension to the production sharing contract for Masela to make it more attractive with other incentives.
This may be jeopardized if there is a change of hands, although Inpex is likely to have first right of refusal for a change in ownership.
The Abadi LNG terminal was listed by Indonesia as a national strategic project in June 2017 and as a priority infrastructure project in September 2017. It would be key to plugging the country's falling gas production and boost its position as an LNG exporter.
As MRC wrote before, in May 2020, CNOOC Oil & Petrochemicals Co. Ltd (CNOOC), Shell Nanhai B.V (Shell) and the Huizhou Government have announced a strategic cooperation agreement to further expand the CNOOC and Shell Petrochemical Company (CSPC) 50:50 joint venture in Huizhou, Guangdong Province, China.
The expansion is planned to serve the growing number of intermediate and performance chemicals customers in the key market of China, supplying products including SMPO, polyols, ethylene glycol, polyethylene (PE) and polypropylene (PP). These chemicals are used in a wide range of end products, in healthcare, construction, fabrics, packaging, transport and electronics. For the first time in Asia, Shell would apply its advanced technology for linear alpha olefins. The project is intended to include construction of a new 1.5 million-tonnes-per-year ethylene cracker, with the mega-site bringing economies of scale and enhanced competitiveness.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.
Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.