Coastal Contracts eyes 49% stake in Indonesian LNG project

Coastal Contracts shipyards in Sandakan

KUALA LUMPUR: Coastal Contracts Bhd (CCB), which provides marine vessels for the oil and gas industry, is eyeing a diversification into the liquefied natural gas (LNG) downstream sector with the signing of a memorandum of understanding (MoU) to take up a 49% stake in PT Jaya Samudra Karunia Gas (JSK Gas) for US$20.75mil (RM83.88mil).

In a filing with Bursa Malaysia, CCB said the Indonesian company was recently awarded an LNG regasification and storage contracts to support PT Indonesia Power’s 200MWh power plant in Bali.

JSK Gas’ floating LNG regasification unit supplies regasified natural gas to the plant under a 5-year build, operate and transfer agreement with Pelindo Energi Logistik (PEL), an indirect subsidiary of state-owned port operator Pelindo Indonesia III,

JSK Gas also owns a floating storage unit that has a 10-year firm charter contract (with an extension option of 13 years) from PT JSK Abadi Lines, the party to whom PEL gave the charter contract.

Based on its latest unaudited financial statements for the year ended Dec 31, 2015, JSK Gas posted consolidated net liabilities of 5.48 billion rupiah (RM1.7mil) and consolidated after-tax loss of 7.48 billion rupiah (RM2.3mil).

In a media statement, CCB said the acquisition would enable the group to establish its presence in the LNG supply chain and to develop expertise in the floating storage regasification unit (FSRU) solution, which is cheaper compared with a land-based terminal.

“It will be able to build a new portfolio of LNG related products and services which are core to the LNG downstream sector, especially for small-scale FSRU which is suitable for archipelagic region, less capital intensive and requires shorter construction period,” CCB said.

The proposed deal will also allow the Coastal group to diversify its earnings stream while simultaneously, diverging CCB’s risk profile from the oil and gas upstream sector.

CCB executive chairman Ng Chin Heng noted that the LNG market was deemed as the current fastest growing market given its cost efficiency as the use of LNG was much cheaper than the other fossil energy sources.

‘While there has always been a significant cost differential between FSRU and onshore regasification terminals, the evolution of a preference towards FSRU is rooted in several other factors including the need to reutilise excess shipping capacity and the necessity to cater for seasonal gas demand. In certain jurisdictions such as China and Indonesia, the shift towards FSRU was largely driven by the need to diversify the energy mix and switch away from crude and coal to cleaner fuels such as natural gas. As such, we envisage an exponential growth of the FSRU market,” he said.