Libya wins, Japan maybe loses, Indonesia in-between

By Terry Lacey

(November 26, Jakarta, Sri Lanka Guardian) As Indonesia launches the second term government of President Susilo Bambang Yudhoyono, with a bright new Foreign Minister, Dr. Hassan Wirajuda, the Indonesian multinational PT Medco Energi Internasional has teamed up with the Libya Investment Authority, while another deal between Medco and the Japan Bank for International Cooperation (JBIC) is in danger of going down.

In a joint venture with Libya’as sovereign wealth fund, Medco will help develop the potentially lucrative onshore Area 47 gas and oil field in the Ghadames Basin, scheduled to start production in 2013.

The deal was struck by the Libyans buying out Meco´s previous partner in the field, Canadian Verenex energy.

Medco and its Libyan joint venture partners will share 13.7 percent of the Area 47 revenue while the Libyan government will reportedly pick up 86.3 percent of its. (Jakarta Globe 24.11.09).

Previously Medco and Verenex had shared a 50:50 stake in the Area 47 having purchased the rights in 2005 for 30 years.

Hilmi Panegoro, president commissioner of Medco confirmed production could reach 50,000 barrels per day and Area 47 was estimated to contain reserves of 2.15 million barrels per day.

The announcement by Hilmi Panegoro indicates Medco has speeded up the Libyan project in the light of uncertainties in Indonesia over other energy developments, notably the Medco involvement in a proposed large LNG project in the Dongi-Senoro oil and gas block in Central Sulawesi.

This is held up by a last-minute decision of the outgoing Indonesian government, when previous Vice President Jusuf Kalla intervened in what was to have been a major Japanese investment and insisted the gas field should supply the domestic market.

This reflected a growing Indonesian energy crisis, with power cuts holding back development in the Indonesian provinces and hitting Jakarta the capital city.

Indonesia has to balance limited gas supply, relative to burgeoning demand, and the need to get away from oil, whilst keeping up with export obligations and demand, with underdeveloped downstream gas infrastructure holding back Indonesian domestic development.

At the recent 10th Indonesia-Japan Energy Round Table incoming Indonesian Energy and Mineral Resources Minister Darwin Zahedy Saleh and super-efficient Director General for Oil and Gas Evita Legowo were both under pressure from a strong Japanese delegation, backed by the financial leverage of JBIC.

Japan had been prepared to be the majority lender for the estimated $3.4 billion Dongii Senoro LNG project for both upstream and downstream development provided initial sales agreements went ahead with two leading Japanese power companies Kansai Electric Power Co.and Chubu Power Inc, each of which were to get 1 million tons of LNG per year for 12 years starting 2012.

Whilst the decision of Jusuf Kalla, prompted by growing domestic energy pressures, was not the end of the world (as in the famous 2012 movie) it was a shock and the Indonesian energy team and Medco are trying to rescue their deal and keep the Japanese in.

Takayuki Ueda, Japans director general for natural resources and energy said in Jakarta “ The project is very much important for both sides [Indonesia and Japan] and yes [we still hope to get LNG supply from the project].” (The Jakarta Post 24.11.09).

Mitibushi Corporation hold 51 percent of PT Donggi Senoro LNG, while Indonesian state oil and gas company Pertamina, led by another new-style pushy woman executive, Karen Augustinian, owns 29 percent and Medco owns 20 percent.

Kansai Electric Power Co has dropped out of the deal and JBIC may not provide loans unless the reconfigured deal is seen as suitable for Japan.

Chubu is still in alongside Mitubishi, but Medco and Pertamina need a new domestic LNG buyer, probably a State Owned Enterprise (SOE).

Indonesian state-owned banks, may not be able to pick up the tab to back an SOE as buyer, if domestic prices are lower than for exports. Also state firms don’t have heavyweight blue-chip financial credentials, unless the state compensates with sovereign guarantees.

There in a nutshell is the Indonesian energy crisis, with escalating regional demand from Japan, China and South Korea, and burgeoning domestic demand, but dependent on the outside for heavy investment.

ASEAN+3 is the world oil distribution and energy choke-point at the moment as Asia drives world recovery.

But for Indonesia this makes for an impossible triangle summating international , regional and domestic energy shortages.

Meanwhile Indonesia pushes into the Middle East and Maghreb where it can get energy alongside finance and maybe growing empathy with Muslim economic partners, with the Organization of Islamic Conference (OIC) pushing trade between member states.

This time Libya wins and Japan maybe loses, and Indonesia comes somewhere inbetween.

Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.

-Sri Lanka Guardian