How BP got it right in Indonesia
British energy giant launches US$8 billion Tangguh gas project expansion as other multinationals come under nationalistic, regulatory and even insurgent fire
Situated in the so-called Bird’s Head region at the western end of Papua, British oil company BP’s Tangguh liquefied natural gas (LNG) project has never generated the same controversy as that of US mining giant Freeport McMoran, its distant neighbor hundreds of kilometers to the east.
Tangguh has a far smaller footprint than Freeport’s Grasberg operation, the world’s largest gold and second largest copper mine, and is dealing with a more manageable resource. But BP decided from the launch of the project 14 years ago that it needed to avoid many of Freeport’s historic mistakes.
Apart from bringing in an independent monitoring team, BP has succeeded in keeping the police and army at a distance and generally established an atmosphere of trust with the local indigenous community in a region free of separatist rebels.
More than 50% of BP’s 980-strong staff is already Papuan, a significantly higher percentage than at Freeport, and the firm’s three-year apprenticeship program is designed to increase that number to 85% by 2029.
New security and social challenges lie ahead, however, as BP embarks on a US$8 billion expansion on the shores of remote Bintuni Bay that will increase production from 7.6 to 11.4 million tons per year, 75% of the third LNG production train’s output destined for the domestic market.
The expansion, involving two new offshore platforms, 13 production wells and an expanded LNG loading facility, will enable Indonesia to meet projected annual demand of 12 million tons by 2020, with some of the LNG being supplied to small power plants around Papua and other parts of eastern Indonesia.
It will also go some way towards restoring confidence in the gas sector after the government compelled joint-venture partners Inpex and Shell to build an onshore rather than an offshore terminal for its Masela block in the Arafura Sea, 900 kilometers south of Tangguh.
Progress on that US$15 billion project appears to have stalled, despite the government urging the two companies to complete a preliminary engineering design by this month to exploit a field with proven and possible reserves of 40 trillion cubic feet of LNG.
Indonesia’s second biggest LNG plant after East Kalimantan’s eight-train Bontang facility, Tangguh draws on proven reserves of 17 trillion cubic feet – a field BP shares with the China National Offshore Oil Corp (CNOOC), Mitsubishi and four other Japanese companies.
It has delivered 900 LNG cargoes to customers in South Korea, China, Japan and Mexico since it first went into production in 2009. In recent years, it has also supplied state power utility Perusahaan Listrik Negara (PLN) and Nusantara Regas, which operates a floating re-gasification terminal in Jakarta Bay.
Former US South Dakota senator Tom Daschle, head of the Tangguh Independent Advisory Panel, calls the current expansion a critical time in the project’s development, saying it presents “additional complexities at a time of a greater terrorist threat.”
Wary of human rights issues, the panel advises against any closer cooperation with the army and police, instead suggesting more training for the firm’s all-Papuan security force and upgrading its equipment from simple batons to non-lethal pepper gel guns, pepper spray, rubber bullets and stun guns.
The panel’s latest recommendations also include strengthening Tangguh’s perimeter fence and increased use of CCTV, radar, drones and patrol boats as BP ramps up its labor force to more than 7,000 to work on the three-year expansion now being undertaken by Italian oil and gas contractor Saipem.
“Rapid response procedures for high-level threat scenarios should be clearly distinguishable from procedures used for fire, explosion or other safety emergency,” Daschle and his team said in its report handed to BP last month.
Although BP’s process control network is already disconnected from the Internet, it has also introduced procedures to guard against the increasing danger of cyberattacks and global hacking.
Security is not BP’s only concern. Relations with local authorities have become more complicated with the euphoria over autonomy and financial decentralization measures leading to an explosion of new sub-districts and villages across West Papua and in neighboring Papua province.
For example, increasing the number of sub-districts in Teluk Bintuni regency from 24 to 28 over the past year has seen the 14 villages in Tangguh’s project area suddenly divided into 37 — including one kampung with a headman and only one other person.
It is not immediately clear how this will affect distribution of the country’s nationwide Village Fund, under which 60 trillion rupiah (US$4.5 billion) is shared among 75,000 rural villages, or what amounts to about 50% of the total population.
Apart from a lack of progress on a government plan for a Tangguh-related industrial zone, BP is struggling to interest state utility PLN in building a grid for the 200 million cubic feet of gas it has allotted to provide power to 50,000 households — more than the regency’s entire population.
BP executives and local officials hope they can get the central government to weigh in on the electrification issue, but they say there is a more immediate need for PLN to assist in expanding the use of solar and diesel generation in Babo, the site of a small airport, and other nearby villages.