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Indonesia requires oil and gas producers to sell 25% of their production domestically, but growing local demand has led to calls by some government officials to halt exports entirely, which could deter developers. The IDD and Masela projects, combined with BP's Tangguh Train-3 project and Pertamina's Jambaran Tiung Biru, would provide an additional 3.5 bcfd gas production to the current 5.3 bcfd output, SKK Migas data showed.

The current formula for splitting revenue between the government and investors in gas projects sets the base rate at 48% for companies.įor the IDD project, the priority now will be to extend the production sharing contracts for the three blocks expiring in 20, said Prateek Pandey, an analyst with consultancy Rystad Energy.Įni will start carrying out IDD plans after the Chevron transaction is completed, a spokesperson said, but did not comment on questions about production-sharing talks.Īt Masela, which will feed the Abadi LNG project, operator Inpex's 1605.T CEO Takayuki Ueda said having Pertamina on board was "very significant, in the sense that we can naturally expect support from the Indonesian government" and a market for Masela gas. Jakarta is considering revising its gross split scheme, he said, without elaborating. SKK Migas' Benny acknowledged that under current terms returns are unattractive for most projects, especially when they have to consider installing carbon capture and storage, which costs hundreds of millions of dollars.

For example, the government determines the revenue split only after a development plan is submitted, which makes it challenging for investors to assess potential risks and returns, Indonesia Petroleum Association and Wood Mackenzie said in a joint report.

The complexity of Indonesia's fiscal terms has long hampered investment. The country has not approved a major oil or gas project since 2016 - the expansion of BP's Tangguh LNG plant. Once one of the world's top five liquefied natural gas (LNG) exporters, Indonesia's LNG exports have halved in the past decade, Kpler data showed. "If it can move projects like IDD and like Masela forward, there is the potential it can remain a net exporter," he said. Without drastic changes to attract investment, Indonesia will become a net gas importer by 2040, said Andrew Harwood, a research director at consultants Wood Mackenzie. Local gas demand is expected to jump 19% from 2023 to 7.6 bcfd in 2030, forecasts from think tank Institute for Essential Services Reform showed. New investment is essential for the country to more than double its gas production to 12 billion cubic feet per day (bcfd) by 2030 to meet growing local demand. The deals - three years after the two majors declared their intention to exit - clear the way for the government to negotiate fresh terms for Indonesia's biggest gas projects after years of delay. Last month, Shell said it would sell its holding in the Masela project to Indonesia's Pertamina and Malaysia's Petronas, while Chevron agreed to sell its stake in the IDD project to Italy's Eni. Key hurdles for the two projects include the country's caps on domestic gas prices, limits on gas exports and the high costs for carbon capture and storage - required for new gas projects to help fight global warming. "Our window is short, we are competing with the energy transition," said Benny Lubiantara, a senior official at upstream regulator SKK Migas.

The Masela and Indonesia Deepwater Development (IDD) projects, together estimated to cost $27 billion, are test cases for Indonesia to show its commitment to attracting oil and gas investment and reversing a decade-long output decline before climate change kills demand for its fossil fuels. Indonesia hopes the recent exit of global giants Shell and Chevron from two long-delayed natural gas projects will jumpstart their development, as it races to more than double gas production by 2030.