BP approves Tangguh expansion

07 July 2016, Week 26 Issue 425

BP gave a final investment decision (FID) for a planned US$8 billion expansion of the Tangguh LNG project in Indonesia, clearing the way for a third train to start operations in 2020. The company announced the move on July 1. 

The announcement came a few months after BP said it would cut back on spending owing to weak oil prices. Late in June, the super-major also approved an investment in the first phase of developing its large Atoll gas field, offshore Egypt, only 15 months after its discovery was announced.

The Tangguh expansion project will add a third LNG train, with 3.8 million tonnes per year of production capacity to the existing facility, bringing total capacity to 11.4 million tonnes per year. The expansion also includes two offshore platforms, 13 new production wells, an expanded LNG loading facility and supporting infrastructure.

The super-major said the expansion would support Indonesia’s energy demand, with 75% of the third train’s production sold to the country’s state-backed power company, PT PLN (Persero). The remaining production is contracted to Japan’s Kansai Electric Power Co. (KEPCO). 

Other contributions to the local economy will come through the addition of 10,000 jobs over the project’s construction. 

“This [FID] marks the culmination of many years of hard work by BP, our partners, and the Indonesian government,” said BP Asia-Pacific’s regional president, Christina Verchere. “We are pleased to reach this major milestone and look forward to continued co-operation as we progress the largest upstream project in the eastern part of Indonesia.”

Indonesia approved the plan in late 2012. Engineering, procurement and construction (EPC) contracts are due to be awarded in the third quarter of this year, followed by the start of work. 

BP did not disclose the project’s cost, but Indonesia’s upstream energy regulator SKK Migas said that the project was worth US$8 billion.

BP’s FID on Train 3 at Tangguh came just a week after SKK Migas said Indonesia intended to start importing LNG by 2019 to be able to meet its ambitious 35,000-MW electrification programme, set in motion in 2015 by Indonesian President Joko Widodo. 

“Existing data show that we can barely fulfil existing demand and it seems that in 2019 we will have to start importing. This will reverse what we achieved in the past. We were one of the first countries to export LNG,” SKK Migas spokesman Taslim Yunus told reporters. Tangguh’s first two trains started up in 2009. 

BP’s decision to move ahead with the third train at Tangguh comes despite the current squeeze on prices in the region, which has led to delays at a number of other projects. The decision to press ahead likely comes as a result of a number of factors, including a reduced price tag from US$12 billion for the third train and a willingness from buyers to sign on to future supplies.