--> Tail Gas Commercialization of Mature Gas Field in Southeast Sumatra PSC, Indonesia: An Economic Review of Gross Split PSC vs Cost Recovery PSC

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Tail Gas Commercialization of Mature Gas Field in Southeast Sumatra PSC, Indonesia: An Economic Review of Gross Split PSC vs Cost Recovery PSC

Abstract

Since 2002 gas project in SES (Southeast Sumatra) was started with objective was to commercialize the non-associated gas for domestic sales and conserve the associated gas for future use. In 2004 PLN (Indonesia state electricity company) had contract to buy gas from SES until September 2018, when the contract of the current operator in SES expires. Reserves evaluation suggests amount of tail gas that feasible to be commercialized, alongside with the opportunity of further field development. The purpose of this study is to assess the economic evaluation of gas project in order to find the suitable proposed scenario for next gas sales agreement. Four gas sales scenarios have been proposed, with no further development for Scenario 1 and 3, and new gas field development for Scenario 2 and 4. Moreover, the Government of Indonesia has set SES PSC to apply the recently-announced gross split terms to the extension, changing from cost recovery. Therefore, the new project should be economically feasible for the new operator. The economic calculation will use current gas price as the base case. Another case is calculated using gas price that linked to the ICP (Indonesian Crude Price). The government has introduced gas price measure for power sector is capped at 14.5% of ICP. Based on Gross Split PSC calculation, Scenario 4 generates the highest NPV value in both cases, with NPV $96,915.4M in Current Gas Price case, and NPV $177,152.3M in Gas Price Linked to ICP case; while Cost Recovery PSC generates NPV $95,382.5M in Current Gas Price case, and NPV $190,450M in Gas Price Linked to ICP case. In the event of using gas price linked to the oil price, it is noted that oil price condition is very uncertain. In anticipation of oil price uncertainty, sensitivity of NPV based on oil price in Gross Split PSC for every scenario has been made. Based on the analysis, each scenario of the gas development project is resilience at low oil price. The gas development project still generates positive NPV value even if the oil price dropped to US$30/bbl. In this study gross split PSC has shown that the new fiscal term is more attractive in terms of gaining higher NPV compared to the previous cost recovery PSC. This result will depends on the capital cost to build new infrastructure development. Cost recovery PSC is more likely to recover the capital cost spent for investment credit, while the gross split made the contractor bear all the expenditure in turn of higher share for the output.