TOKYO/JAKARTA (Reuters) - BP gained final investment approval to an $8 billion (6.01 billion pound) expansion of the Tangguh liquefied natural gas (LNG) project in Indonesia on Friday, clearing the way for a third train to start operations in 2020.
BP is going forward with expansion of Tangguh despite announcing it would rein back on spending this year due to weak oil prices. It also approved investment on an Egyptian gas field last week.
The investment will boost annual LNG production capacity at the Tangguh project in Indonesia's West Papua province by 50 percent to 11.4 million tonnes.
Three-quarters of the gas from the new Train 3 will be supplied to Indonesian power utility Perusahaan Listrik Negara [PLNEG.UL], BP said. The rest will go to Japan's Kansai Electric Power Co.
Officials at Indonesia's upstream energy regulator SKKMigas said the project was worth $8 billion, although BP declined to confirm that figure.
"We are finalising details with potential lenders and at this point I'm not able to disclose who they are," Christina Verchere, BP regional president Asia Pacific, told reporters.
In May BP cut its budget for the project to $8-10 billion from $12 billion.
"This final investment decision was made after confirmation with Tangguh production-sharing contractors and is based on commercial considerations," said Indonesian energy minister Sudirman Said.
BP leads the Tangguh project with a 37.16 percent stake. Its partners include MI Berau, China National Offshore Oil Co and a venture between Mitsubishi Corp and Inpex.
Friday's decision also sealed a $2.43-billion onshore building contract for a consortium led by Tripatra, part of Indonesia's Indika Energy Group, SKKMigas chief Amien Sunaryadi said.
A $448-million offshore contract was awarded to the Indonesian unit of Saipem, he said.
"(These) are the contractors who did the front end engineering designs, so we hope the (results) aren't too different from that," Sunaryadi said.
By Osamu Tsukimori and Wilda Asmarini
(Writing by Fergus Jensen; editing by Himani Sarkar and Jason Neely)
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Headline crude prices for the week beginning 7 January 2019 – Brent: US$57/b; WTI: US$49/b
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At some point in 2019, crude production in Venezuela will dip below the 1 mmb/d level. It might already have occurred; estimated output was 1.15 mmb/d in November and the country’s downward trajectory for 2018 would put December numbers at about 1.06 mmb/d. Financial sanctions imposed on the country by the US, coupled with years of fiscal mismanagement have triggered an economic and humanitarian meltdown, where inflation has at times hit 1,400,000% and forced an abandonment of the ‘old’ bolivar for a ‘new bolivar’. PDVSA – once an oil industry crown jewel – has been hammered, from its cargoes being seized by ConocoPhillips for debts owed to the loss of the Curacao refinery and its prized Citgo refineries in the US.
The year 2019 will not see a repair of this chronic issue. Crude production in Venezuela will continue to slide. Once Latin America’s largest oil exporter – with peak production of 3.3 mmb/d and exports of 2.3 mmb/d in 1999 – it has now been eclipsed by Brazil and eventually tiny Guyana, where ExxonMobil has made massive discoveries. Even more pain is on the way, as the Trump administration prepares new sanctions as Nicolas Maduro begins his second term after a widely-derided election. But what is pain for Venezuela is gain for OPEC; the slack that its declining volumes provides makes it easier to maintain aggregate supply levels aimed at shoring up global oil prices.
It isn’t that Venezuela doesn’t want to increase – or at least maintain its production levels. It is that PDVSA isn’t capable of doing so alone, and has lost many deep-pocketed international ‘friends’ that were once instrumental to its success. The nationalisation of the oil industry in 2007 alienated supermajors like Chevron, Total and BP, and led to ConocoPhillips and ExxonMobil suing the Venezuelan government. Arbitration in 2014 saw that amount reduced, but even that has not been paid; ConocoPhillips took the extraordinary step of seizing PDVSA cargoes at sea and its Caribbean assets in lieu of the US$2 billion arbitration award. Burnt by the legacies of Hugo Chavez and now Nicolas Maduro, these majors won’t be coming back – forcing Venezuela to turn to second-tier companies and foreign aid to extract more volumes. Last week, Venezuela signed an agreement with the newly-formed US-based Erepla Services to boost production at the Tia Juana, Rosa Mediano and Ayacucho 5 fields. In return, Erepla will receive half the oil produced – generous terms that still weren’t enough to entice service giants like Schlumberger and Halliburton.
Venezuela is also tapping into Russian, Chinese and Indian aid to boost output, essentially selling off key assets for necessary cash and expertise. This could be a temporary band-aid, but nothing more. Most of Venezuela’s oil reserves come from the extra-heavy reserves in the Orinoco Belt, where an estimated 1.2 trillion barrels lies. Extracting this will be extremely expensive and possibly commercially uneconomical – given the refining industry’s move away from heavy grades to middle distillates. There are also very few refineries in the world that can process such heavy crude, and Venezuela is in no position to make additional demands from them. In a world where PDVSA has fewer and fewer friends, recovery will be extremely tough and extremely far-off.
Infographic: Venezuelan crude production:
Headline crude prices for the week beginning 31 December 2018 – Brent: US$54/b; WTI: US$46/b
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