Project cost and funding mix
Kimura et al. (2020) state that the company is a joint venture between the Indonesian Government (Pertamina) – 55%, TotalFinaElf Indonesia – 10%, VICO Indonesia – 20%, and Jilco – 15%. According to Bontang LNG Plant (Liquid Natural Gas Project), Indonesia (n.d.), the project was financed with a $ 1.1 billion loan from a syndicate led by Bank of Taiwan, which members are also Mitsubishi Corp., Long Term Credit Bank, Banque Indonesia, Fuji Bank, Chase Manhattan, and Tokai Bank.
Demand, supply, and risks
The plant supplied LNG to major customers in Japan, Korea, and Taiwan. The halt in Bontang LNG exports was driven by Indonesia’s growing domestic demand for gas, which is estimated to grow at a 2.8% annual rate through 2020, and government concerns over the use of gas as a feedstock for power generation, fertilizers, and petrochemicals production. According to Nugraha (2021), the Bontang LNG Plant is expected to produce less gas and condensate in 2021 at around 485 million cubic feet per day, down 20% from 605.5 million cubic feet per day in 2020. Condensate volumes are also forecast to decline by 25% to 22,000 barrels per day from 29,400 barrels per day.
Initial problems with the project and final restructuring
The project’s implementation was fraught with several technical problems. Kimura et al. (2020) note that the CO2 removal unit (amine unit) was one of the major causes of Plant Related Losses in 1989 – 1999. Moreover, problems due to cracks of the first stage impeller of the 4K- 2 MCR compressor have been experienced since March 1994. In some cases, the situation has caused significant production loss. In turn, the problem in coolers that used Cu / Ni tubes was tube leaks due to seawater corrosion and tube scaling. This issue was one of the major causes of lost production due to the plant must be shut down for tube leak repair.
According to Bontang LNG Plant (Liquid Natural Gas Project), Indonesia (n.d.), maintaining Bontang production is associated with many other issues:
- Gas supply problems: Three gas suppliers (Total, VICO, and Unocal) faced underproduction or production inconsistencies because of maintenance, accidents, or poor field performance.
- Lack of investment incentives: Sales contracts of Bontang LNG do not provide for non-performance penalties. Accordingly, manufacturers do not incur additional costs for buyers for the non-fulfillment of contractual obligations. As such, questions about who is in charge of the maintenance and repairs at PT Badak’s aging plant facility, as well as possible future costs from its operator Pertamina, have slowed down investment in the facility.
- Fertilizer plants: Despite the LNG shortage, the Indian government is diverting gas from Bontang producers so that Pertamina can sell subsidized gas to other entities, including a national fertilizer group and two small Japanese-owned plants.
Bontang LNG Plant (Liquid Natural Gas Project), Indonesia (n.d.) asserts that LNG production started at the Bontang plant in 1977. Bontang, which is one of the largest factories globally, has eight processing lines and a capacity of over 21 million tons per year. However, according to Nugraha (2021), production declined because of a lack of explored natural gas fields. In this regard, only two of the eight lines were in operation. Moreover, at the beginning of 2021, Bontang only operated one line due to the maintenance of the second line. Due to a decrease in gas supply, LNG production has halved.
References
Bontang LNG Plant (Liquid Natural Gas Project), Indonesia. (n.d.). Hydrocarbons Technology.
Kimura, S., Miyakoshi, S., Purwanto, A., Sidemen, I., Malik, C., Suharyati & Lutfiana, D. (2020). Feasible solutions to deliver LNG to Midsized and large islands in Indonesia [PDF document].
Nugraha, A. (2021). Indonesia’s Bontang LNG to shut one train for maintenance amid declining output. S&P Global. Web.