INPEX LIKELY TO OPT FOR OFFSHORE LNG TERMINAL IN

UNCLAS TOKYO 002948 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EPET ENRG PREL ID JA SUBJECT: INPEX LIKELY TO OPT FOR OFFSHORE LNG TERMINAL IN INDONESIA'S MASELA BLOCK ¶1. (SBU) INPEX Corporate Strategy and Planning Division Manager Hiroshi Ikeda confirmed the firm expects to make a decision in mid-November to construct an LNG terminal to service the Abadi gas field in the Masela Block. Ikeda clarified an October 5 Nikkei report, one that suggests the firm has decided to go ahead with construction, by saying the offshore terminal is "likely", but not yet 100% certain. Ikeda said the Nikkei interview with INPEX company President Naoki Kuroda was intended to focus on the firm's integration with Teikoku Oil Co., not on the LNG terminal construction. ¶2. (SBU) Ikeda said INPEX has had a 100% working interest in the Masela Block since 1998 and drilled four appraisal wells in 2007. The firm's current production forecasts for the Abadi gas field are for between three and five million tons/year by 2015. (Note: This one field would meet about 7% of Japan's current LNG import demand). ¶3. (SBU) Ikeda explained the feasibility of the offshore floating platform is still under review. Surveys strongly suggest the anticipated Abadi gas field's LNG production would far exceed the capacity of any offshore terminal currently in operation. Thus construction of a new and larger offshore terminal is necessary. The firm is negotiating the terms of the next stage of a 20-year production sharing contract with Indonesian authorities, and the GOI has reportedly requested INPEX construct the new offshore platform within Indonesian territorial waters as a prerequisite to concluding the contract. ¶4. (SBU) Media reports estimate construction costs at one trillion yen (roughly $10 billion),approximately 50% more expensive than INPEX's second option of transporting the LNG via a 400 kilometer undersea pipeline to an onshore facility in Australia. Ikeda described the Australian option as perhaps less expensive and technically easier, but added it would have unspecified transaction and tax costs associated with transporting the gas across international borders. SCHIEFFER