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Oil & Gas Journal

Eric Watkins
Senior Correspondent

LOS ANGELES, Aug. 29 -- Inpex Holdings Inc. has begun a ¥100 billion project to build a regasification terminal in Niigata Prefecture on Japan's Honshu Island and anticipates starting regular operations in 2014.

But the Inpex plan to supplement Japan's rapidly diminishing domestic gas supply with imports is clouded by environmental issues in Australia and by resource nationalism in Indonesia, according to the Nikkei Business Daily newspaper.

Teikoku Oil Co., an Inpex group subsidiary, is supplying its natural gas customers in eastern Japan through a 1,400 km pipeline from Nagaoka in Niigata Prefecture. The company projects that the field will be depleted in 20 years.

NBD said Teikoku is planning to supplement its domestic supply with imports from a concession in Ichthys, Australia, which will produce 8 million tonnes/year, or about 10% of Japan's total gas imports.

Environmental concerns
As part of its concession, acquired in 1998, Inpex planned to build an LNG base in the Maret Islands off Western Australia, about 200 km from Ichthys gas field.

But those plans recently hit a snag, as Australia's new Labor Party administration wants all companies planning to develop gas fields in northwest Australia to centralize their LNG bases to minimize negative impacts on the environment.

That decision, the paper reported, has made Inpex unsure about the Maret LNG base.

Australia's Northern Territory government has since offered Inpex an alternate location in Darwin, promising to help it handle environmental and aboriginal concerns.

But Darwin is 900 km from Ichthys field, and no firm has ever accomplished pipeline transfers of LNG over that distance. With costs rising for steel pipe and other materials, the project would cost over $20 billion, or some ¥2.2 trillion.

Resource nationalism
Meanwhile, in Indonesia, Inpex faces different challenges. The company sees advantages in transporting gas from Indonesia's Abadi field to its LNG base in Australia when it begins producing the gas in fiscal 2015.

But the Indonesian government, which wants Japanese investment, is demanding that the firm build an offshore LNG facility.

Inpex does not have the technology to process gas into LNG offshore in the unstable ocean environment.

The Indonesian government is also putting higher priority than ever on domestic demand over exports, and if Inpex makes the wrong political move, it could jeopardize its gas field development there.

Indonesia has a general election scheduled for the spring followed by a summer presidential poll, so Inpex may have to sit and watch which way the political wind will be blowing.