I would now like to start the Investor Day of INPEX Corporation. Thank you very much for everyone for gathering today, despite the hot weather and despite your busy schedule. My name is Wakita, General Manager of the Corporate Communications unit, and I will be serving as the MC for the session today. Let me introduce the speakers. Representative Director, President and CEO, Mr. Takayuki Ueda. Director, Senior Managing Executive Officer, Senior Vice President of Oceania Project, Mr. Hitoshi Okawa. Director, Senior Managing Executive Officer, Senior Vice President of Finance and Accounting, Mr. Daisuke Yamada. Director, Senior Managing Executive Officer, Senior Vice President of Corporate Strategy and Planning, Mr. Toshiaki Takimoto. Managing Executive Officer, Senior Vice President of Asia Project, Mr. Akihiro Watanabe. Executive Officer, Senior Vice President of Hydrogen and CCUS Development, Mr. Shoichi Kaganoi.
As for the program today, we will spend about an hour to explain and also respond to questions for the two agendas to begin with. Then we will take a 10-minute break, and then we will hold a 50-minute general Q&A session. Today's meeting is held in a hybrid meeting with online participants and with simultaneous interpretation. For those participating through Zoom, please select the language of your choice. For the presentation material, please make your selection using the button at the top of the screen. We will ask Mr. Ueda, President and CEO, to make opening remarks.
Hello, everyone. My name is Ueda, President and CEO of INPEX Corporation. Thank you very much for coming today, despite the hot weather. For those people participating through Zoom, thank you very much for giving us your valuable time. I would like to express sincere appreciation.
As for the Investor Day, this is the second occasion following the first Investor Day last year. The uniqueness of this Investor Day is those with responsibility for project. Today, for Abadi and for hydrogen CCUS, the VPs responsible for this business will explain about the current status, the future prospect, as well as any trouble that we may be experiencing. We will try to give that explanation directly to you. For other projects or for the course of direction for the company overall, you are able to ask questions about those themes using the general Q&A session that we have scheduled at the end of the session today. The overall session will be two hours. Some people have indicated that it may be too long, but I look forward to your participation throughout the day. Thank you very much once again for your participation.
I will now provide an explanation on the topic, expansion strategy of the LNG business. Mr. Okawa will first talk about the Ichthys LNG project.
My name is Okawa from INPEX. Following from last year, I would like to explain about status quo about Ichthys, as well as talk about the future of the project going forward. Today, I would like to cover five topics. A long-term stable operation of the project is our mission. And so, how can we achieve that stable operation? What are the challenges to enabling this? That is what I would like to explain as the first topic. The second topic is backfilling or train expansion for maintaining plateau. What are the strategies employed in this area? We have a massive production facility. We like to utilize that as an advantage and expand business.
The third topic is making cleaner. Of course, when we are developing and producing fossil fuel, we have a mission to reduce CO2 emission. How can we achieve that cleanness while expanding production? That is the challenge that I would like to describe. The fourth is about the INPEX brand. We are continuing a sizable business. In that regard, the brand of the company is very important. Can people trust INPEX? Are there people wanting to work for INPEX? We consider that to be very important. In the past, we have started the INPEX brand where we had no visibility. What is the current situation? The final point is the energy business and investment environment in Australia. We gave explanation about this last year. What have been the changes?
What have been the changes in regards to the stand of the Australian government? These are what I like to cover in my part. First of all, the long-term stable operation of the project, there are four key points in this regard. First, continuance of safe operation. This is going to be the key. Not just working on stable operation, but we need to improve the reliability of the equipment to improve the productivity. There is also quite an important issue in regards to the production plan and also the ship arrangement. How are we going to work on that? Also reduction of CO2 emission is also something that we need to work on. What is the current situation in regards to production for this fiscal year? Please allow me to explain about this.
I would like to talk about the first half of the year and the second half of the year. The first half of the year, first and second quarters, we were able to operate very smoothly, and we were able to achieve a high level of facility utilization, achieving stable production. Everything went well until then. As you are probably well aware already, in July and August, we did actually have production issues, and right now, the production has dropped to around 35% level. Today, I would like to explain about the facts and explain why we have implemented a production reduction, and what is the situation now, and when are the expected recovery coming going forward. I would like to explain those in some detail.
In July, a heat exchanger is what we use, but this heat exchanger is used within the process where we remove heavier gases like ethane or butane or propane. There is a process to extract those heavier gases so that we are able to just leave methane in the end. What plays an important role here is the heat exchanger. There was a small amount of gas leakage from the heat exchanger, and when there is any gas leakage, there is a possibility of fire. Despite the fact that the volume of leakage is small, we felt that we need to do a proper inspection. In that regard, when we talk about the heat exchanger, we have two trains, and these are the train one and train two, as you know.
But for both train one and train two, there are three heat exchangers utilized. We have six of the heat exchangers in this process. One of the three in train two ended up with a small amount of the gas leakage. We need to first inspect that. In July, we were working on that. Because we have three systems and another system, in other words, a second out of the three lines in train two, also caused the gas leakage. When you stop the two systems, you have to stop the train. In August, when we identified the second trouble, we had to shut down the operational train two. We were only operating with train one. In other words, we were producing at 50% for the entire facility.
Since then, as you know, train two and train one, we use the same equipment. If that's the case, how can we secure safety of train one? Then, of course, you need to address this potential concern. In order to ensure safety for train one, we decided to inspect one of the three systems. That is what we are doing right now. When we're doing that, the inspection, the production volume for train one had to be reduced by 30%. In other words, we are currently operating at 70%. Train two is zero and train one is at 70%. In total, we are operating at 35% of production volume right now. That's the current situation.
Today, we discussed with the vendor who's supplying, and from the vendor, the engineers who are dispatched are already on site in Darwin. In Darwin, there's been works conducted. As a result, as one of the train two, one out of three is okay. There was a confirmation. For train two, basically, end of September is when we're going to have 100% production, and that is what we are scheduling today. For train one, the question is, what is the situation for train one? There are also a detail inspection that is required. Therefore, for train one, end of October to November, beginning of November, there'll be various confirmation made. In total, beginning of November, we may go back to 100% production. That is what we're thinking. However, after inspection or surveys, we don't know what will happen.
Therefore, we would like to work on those details. Then looking at safety, we'd like to make sure that production will start. However, the key points here is talking about the heat exchanger. Why is there a trouble in the heat exchanger facility itself, or whether we won't have the same trouble in the future? For this, there are a couple of root cause, and today, we are still not in a situation where we can identify the root cause at this moment. There are mainly two to three root causes that we have identified, or we are able to skew down to. Therefore, once that is clear, we would like to take more drastic measures to improve the situation. However, as mentioned, at the beginning of November is when we would like to resume back to 100% production, and that is the schedule.
It's slightly long. Today, the production situation and the trouble and the expected recovery going forward is what I just covered. Regarding the excess performance, it is improving. The awareness towards safety on the contractor side as well has been improved quite a lot. With the contractors, we are working on these HSE performances. We have given a lot of directions in detail. Finally, we are coming to fruition. Regarding the HSE performance, we are able to have quite a high level of security today. That is number one. Next page, please. The plateau maintenance, backfill, train and expansion. As mentioned before, in Ichthys, to maintain the plateau, if we don't do anything, in the latter half of 2030s, there'll be production drop. Therefore, to offset that situation, we are thinking of backfill.
As one of that, we have Cash Maple project, which we have secured. This Cash Maple is how we can maintain the plateau for several years. Just the several years of maintaining is not enough. For backfill, we have to think of something following Cash Maple as one of that. In the nearby location, surrounding block, we have the exploration blocks as well. We would like to communicate that well. First, there are two exploration blocks or wells that we drilled. However, those were dry, unfortunately, unsuccessful. For the exploration of the surrounding blocks, we would like to review, once again, our plan, and then we would like to come up with a policy for these explorations. As overall in the surrounding blocks, even though it's a small amount, there are some gas reserves.
For commercialization, it is close, so we can commercialize easier, and that is very important. Close proximity is very important. Even though it's a small amount, we can commercialize them, and then that will lead to maintaining the plateau, and that's clear. Therefore, the maintaining of this exploration, we have unsuccessful two exploration wells, but we would like to review the plans going forward for these exploration blocks in the surrounding areas. And then, for the train expansion, last year, as we explained, today, we are in the acquisition process, and that's what we mentioned last year. In last year's presentation, we mentioned about in the following year, in May or so of the following year, we may have those news. You may find out what area INPEX is targeting. Until then, please wait until those details. That's what we mentioned.
Whether we have that information in May, no, we don't have that. That's because the process itself is in the very peak time today and in various ways. There are a lot of technical assessments and there's been a lot of progress. However, those technical assessment and the actual development plans assessment, there are times taken or consumed. Therefore, at this moment, we cannot give the details yet today. We think it will be in the future. However, when it comes to the candidates, we'll be screwing down those candidates going forward. Perhaps by end of the year, we may be able to have more clarity, and we may find out whether we can go into the final round or not.
At this moment, to explain the status quo, from our development, we have a certain confidence from our development activities, so we hope we can go to the final round. However, there are various factors. I cannot just give all the details today, but in the near future. Next time, for sure, we hope that in the near future, we can discuss more details. Next page, please. Regarding the CCS business, by end of this year, the two appraisal wells was planned to be completed, and that is mentioned. However, in fact, out of the two, one has already been drilled, and we are mostly close to the end of the drilling activities. In July, on the 25th, we started the drilling activities. The second is starting from September 25th. That is the schedule.
Therefore, by end of the year, we will finish the drilling. For one, we have already finished, and second is already going to be started. We have a good progress on this front. Based on this result, the Bonaparte CCS G7 result is what we like to make sure we do well, and then whether we can have CO2 injection, and the injectivity zone is what we are going to appraise going forward. By end of the year, around the end of the year, we think that Bonaparte CCS will have more visibility on how much capability we have. In that process, simultaneously, we have to evaluate other factors. How much size we will run this project with. Ichthys is 6 million tons of CO2 emission. However, 6 million tons, whether economics will work, it was unclear.
If it's 10 million tons of size, it has to be 10 million tons, and that means other demand have to be raised. That means CO2 will be transported from Japan, and with the buyers, we have to discuss. Once the demand is clear, we would like to talk about the exact project size. Therefore, today, actual drilling, and regarding this layer, how many CO2 injection can be made? Along with that, what size of operation we'll have in this project, we are working on getting the potential buyers today. Also, the Darwin-based CCUS Hub, et cetera, those led by the Northern Territory government. There is a change in the government in August. Today it's a change to Liberal Party. What kind of policy will be used going forward?
We would like to discuss that continually with the new government, and then there will be more clarity on what kind of hub we will have in the future. In fact, regarding the current activities, the facility that we are running today itself, it has to be decarbonization activity as well. Electrification is one, and using renewable energy, we have to bring electricity and use electric power. Those are things we have to commercialize. Also, we built Connect project. We have afforestation activities. We are expecting offsetting here as well. However, unless we go ahead with these projects, it's hard. Acquiring the land is really difficult. Unless we are able to successfully acquire these lands, we won't have afforestation activities. These are areas we are struggling at this moment. Next page, please. This is the INPEX brand we have established.
In the past one year or two years, our awareness of the INPEX brand has dramatically increased. Last year, as explained, we also discussed about that brand awareness. How people can feel this is really from the government. If there is any change in the government industry policy, our feedback is requested. We give our feedback to the government, and that is the normal operation today. That means we have a high awareness of our brand. In the last time, as we mentioned slightly, the government, if it is trying to change the policy, it was difficult before to give some comment, but now we have a say so that we can give some comments and say no to some activities. That is one thing that we have changed.
From September 2018, we started the production, and we have come to today, and we have continued safety operation till today. That is why we have increased credibility against the operatorship and also our contribution to the Australian government. I think that was well-recognized today.
We started from zero as recognition, but we now have established quite a strong recognition in Australia. For us to engage in this business going forward, there are three key points. We need to be the employer of choice. Like I said before, last year, we need to be a company that is chosen. We need to become a company that people want to work for, because projects are people, and we need strong, capable people. To what extent are we able to gather these people is going to be key. Now we are becoming well-known, so we are seeing increasing number of people who would like to come and work for us, are leaving their former employer. The employer of choice, I think we are making a lot of progress there. The second is partner of choice.
Companies are wanting to partner with us and work. The biggest renewable company in Australia that they partnership with us here, they want to engage in a joint venture with us in Australia. This was because we were a partner of choice. There are companies wanting to engage in business with us. Starting with renewable energy business, the company of INPEX is going to be considered even higher, and our brands will be established more strongly, and we will become even greater the partner of choice. The third is our contribution to local communities. To what extent are we able to contribute to the local people? This is a very important point. Irrespective of how much we want to expand our business, if the local people are against that, we cannot expand our business.
In that regard, the local contribution is something that we are going to continue at even greater pace than what we have done thus far. Last year, these five points that I have explained about the change in the approach of the Australian government. The Australian government has tightened their grip in regards to the development of fossil fuel. What has happened since then? There was a significant development this year. In May 2024, the Australian government has announced their Future Gas Strategy. We were asked for our opinion in this, and we were able to communicate our opinion. These were put together as the Future Gas Strategy. The biggest point here is that under the Labor government, they have not really recognized the importance of natural gas.
Like West Europe, there was a period when they had leaned so much towards the renewable energy, and the importance of oil and natural gas was very much looked at lightly. Since then, the situation started to change, and just based on renewable energy is insufficient. The natural gas is now considered as a transition fuel, as a cleaner fuel. It has been re-recognized as such. Using their words, they have now started to refer to natural gas as being an indispensable energy. They have started to recognize that additional investment are required. CCS, which was not considered very much previously, has been re-recognized as being an indispensable technology. Despite that, despite the importance being recognized, we have not really seen much the financial support.
We said that we want to see more specific support being expressed, inclusive of our financial support. We are making a request to the government in that regard right now, and the relationship that we have been able to establish with the government thus far. We want to leverage off that and say what we need to say, and we want to be proactive in communicating with the Australian government. This is something we have already been doing, so in that regard, this type of approach will not change. That was quite brief, but with that said, I would like to complete my explanation. Thank you.
Next, Mr. Watanabe will talk about the Abadi LNG project.
My name is Watanabe, responsible for the Abadi LNG project. Today I would like to talk about the current status and the future prospect for the Abadi project.
Moving to the next slide. These are what I would like to cover in my part today, four topics. Moving to the next slide. This slide explains the overview or the outline of the Abadi LNG project. I explained about this last year as well, but the four unique features is what I would like to talk about. We have until 2055 until the project license expires, so it is quite a long-winded project. The second is the participating interest. Apart from ourselves, Pertamina and Petronas. This is an LNG project with some Asian operators in Indonesia and Malaysia. The state-owned oil companies from these countries are participating. This is a project with the strongest oil and gas companies in Southeast Asia participating. The third point is the production volume. LNG, 9.5 MTPA of production.
If you look at the illustration on bottom right, the development concept there. How are we going to develop the project? As was explained, this project is very similar in terms of development as Ichthys that we have already developed. The fourth point is as shown at the bottom of the slide, in regards to the Abadi project, we are also planning to employ CCS. CCS is to be done in parallel at the same time as the LNG production start. We have already received approval from the Indonesian government in that regard. Current status, last point. Right now, we are making preparation towards starting the FEED, the operation. I will explain in more detail about this using the next slide. On this slide, it explains what we are doing this year. There are four bullet points shown on this page.
For the project operation, the three top bullet points are what we are currently working on. We are making preparations towards FEED, so we are doing a G&G survey, geophysical and geotechnical survey, both onshore and offshore. For us to do design, we need to understand the geological strength and so forth, so we need to engage in activity to gather information about the geology. The second point, we want to start FEED as quickly as possible. We are trying to go through the selection of an engineering company to do the FEED work. We are going through the tender process for FEED. The third point here is environment-related permits or obtaining land on which the plant is to be built. We are currently working on the approval, the obtaining work with the Indonesian government.
For this year, these are the three major points. In regard to Indonesia, people might think that relationship with the government could be difficult, but what is making the best progress out of the three points that I have mentioned is the third point, the environment-related permits and so forth. We have received strong support from the Indonesian government, so we have not experienced any major problems in this regard and making very good progress in regards to these permitting work. Together with this project work, we are also working on the marketing for LNG sales going forward or to work on financing. In regards to these initiatives, more explanation will be given in the subsequent slides. This page talks about the marketing and also financing activities and the status right now.
In regards to these activities, in order for us to work on this project, in essence, we need to start the FEED and to understand the cost and the schedule of the project. We need to understand that correctly. For example, when it comes to marketing, from when can we start to supply LNG? That would be the most important point or information in engaging sales activities and also for financing. How much will this project cost and how much do we need to receive finance from the market? We need to understand this correctly.
This information is something that we would like to update based on FEED, and we will have more accurate information or accurate numbers. At this moment, we are doing some activities and from gas LNG, those potential buyers, we are discussing with those potential buyers who are asking for potential financial institutions who can lend us. These are what we are confirming today on these lending activities and lending expressions. For the marketing and financing both, we have a positive encouraging feedback today at this moment. These are positive situation we are seeing today and going forward, the actual contracts will be forming these in the future. But for that reason, as mentioned earlier, the project side will catch up and from when we will have first production startup and from when we can realize this project, these are information we need to obtain.
For the meantime, the challenge is the project progress and also so that we can have a base, a foundation for the marketing and financing activities in the future. That's what we are thinking at this moment. When it comes to the actual project, what we are going to do in the future. For the project work, as mentioned before, we are still in the preliminary stage today. Going forward, the things that will be discussing is actually the content of the. Not the actual content of what we'll be doing but based on what policy we'll be working on this project, and that is put in the next slide as a summary. As you can see in the slide, the majority of these have been disclosed in the Investor Days or talked in the Investor Days last year.
As an important point, there is no change in the policy that we have discussed. That's the first thing. In this project, what we have to realize is the IRR, internal rate of return, a mid 10% range is the basic idea that we aim in this project. To realize this, we are going to manage the project in the future, and that's the current policy. The three bullet points or three points underneath is as a challenge we face today. The actual challenge is, number one, project execution risk, how to manage that, and how to work on the cost and the schedule, and whether we can proceed the project as planned. These are things we have to manage. Also, as mentioned before, we have a strong support from Indonesian government. We have a good environment for proceeding with the permits.
However, we still have some country risk, so that's the current understanding. Those are things that we like to manage as well. These are the risks that we have. In the future, when we do the FEED in the future, how are we going to manage these risks is something we have to work on in terms of risk mitigation, risk management, and we like to come up with those plans. Going into the actual EPC work, and when we start the construction, we have to make sure we won't be exposed to these risks and manage them well, and that's how we like to proceed the project so that the economics level that I mentioned earlier can be achieved. Having said that, the project execution always have uncertainties.
In the final course, we do not know whether everything will be successful, but as mentioned at the very bottom, after the FEED, at that point, the updated cost or schedule, which will be more accurate, and also the re-evaluation of the economics of the project will be done. Then together with the government of Indonesia, with that reviewed project economics, we would like to talk about more in-depth about the project economics. That is what we have committed so far. What kind of discussions we will have in particular is, as you can see in the top, the IRR mid 10% range is what we are targeting, and in order to realize that, what we need to do to execute the project. These are things we would like to discuss with Indonesian government. In some cases, we may have additional support from the government or incentives.
These are things we also have in mind, and these are kind of preliminary basic ideas we have. With the Indonesian government, we have already shared these views. These are things that we would like to follow as a policy so we can execute the project. As a result, Abadi project will be one of the growth drivers of our company. For the shareholders, investors, we hope to meet the expectation. That is how we would like to proceed and work hard on this project. We hope to receive your continued support on this project as well. Thank you very much.
Followed by that, we would like to go into Q&A. Ichthys and Abadi, I would like to ask one question each. First is regarding Ichthys. Recently, the trouble that is happening recently, there is a lot of detailed explanation today. Thank you very much for that.
There are some concerns in the market as well. Thank you very much for that explanation. On top of that, simply put, the Ichthys, the next 5-10 year span, to identify the cashflow, the key points. What are the key points that you would like to highlight? If possible, the CapEx, for example, CCS expansion and also the backfill and the further exploration work. In Ichthys, from maintenance CapEx, if there is any plus alpha increase in the spending and in what point, what timing or how much increase, can you please give some color around that? Also for operating cashflow, the tax and the inflation cost, the cost increase based on inflation, how are you planning to manage these as well, especially for inflation. With the workers, I am sure you have the contract, which is ending on 2026.
What are you thinking to manage these in the future? For tax PRRT impact, how is your view on that impact? Regarding Ichthys cashflow, including all these factors, can you please elaborate on that? That is number one. Regarding Abadi, the project IRR or the IRR 10%, the mid-10% range. Just to clarify the definition of this is equity IRR. Is that correct? That is number one. Also, regarding the financing from debt providers, you have confirmed their intention, but you do not know how much size will be required for this project, so it is still early. From the debt financing side, there is an expected expression, so there is a certain flexibility to some extent, or you have a room to have a certain leverage. Is that what you feel today?
IRR definition and also the financing between equity and debt, what is the breakdown you are thinking today and the market, the expression, how much a breakdown you are expecting today? That is what I would like to ask for today.
Thank you very much for your question. First, for the next five, 10 years, what kind of cash flow we can expect and what kind of CapEx flow can be expected from Ichthys. First, for example, if you look at the next 5 - 10 years, what we are going to do is the question. At least regarding plateau, we will be creating the foundation where we can maintain the plateau. For the first time after maintaining the plateau, we will be working on expansion. That is a very important timing and how much investment will be required in that activity.
Regarding the size of the investment, first is the subject of plateau. Once we have identified the subject. For the plateau, there are several ways of looking at this, as mentioned. First is exploration activities, and then on top of that, the other discovered but not developed project reserves. What we are going to work on those. We are working to skew down the subject today. As mentioned last year, we have still in a situation where it is hard to say and ensure how much size we are expecting, so we cannot give those details today. But the PRRT or the labor, the workers' relationship is the question. First is PRRT. There is an impact, and we are becoming more in a position where we have to pay PRRT. That is certainly going to be an impact in this project.
When it comes to exact amount, we do not know, but from 2026, we will have these numbers, and there will be 40%, 50% corporate tax, income tax. There will be some impact, a significant impact, and that is one thing we can say for sure. Regarding the labor unions relationship, that will be the challenge going forward. But regarding the labor union, as you already know, it is a very strong position in Australia. Recently we have also had other company to shut the labor union. They came to some agreement. But if that becomes a precedent, then we have to raise the salary quite largely. Especially when it comes to offshore facilities, there will be increased additional payment for the offshore, and if there is a room for four, we have to have a change to a room of two or one person in one room.
That is how we have to change going forward. Also, there will be some constraint in the offshore facilities. When it comes to our plan, there is a risk that we will not be able to execute them as planned. But going forward, we will be negotiating on them in the future. When it comes to these precedents, that is one thing. But when it comes to actual execution of our project, to some extent, it has to be rational for us as well, or else it will not work. Therefore, we are discussing with the labor union today about our business, and if this business does not work, then they will lose their job. That is why we have to make sure that we find a route so that both of us can survive. These are negotiations that we are going to unfold going forward.
But in Australia, there's a strong position of the labor union. That's one thing we can say. The Australian government also supports them, so we have to work on them very carefully.
I hope I answered your question. Please allow me to explain the situation in regards to IRR for Abadi. Is it project IRR or is it an equity IRR, and how much leverage can we expect? I think that was the gist of your question. But prior to responding to your question, and you probably know this already, but when we raise funds for Abadi, then how would they be reflected into the project? Please allow me to explain those fundamental aspects to begin with. For Abadi project, this is a PSC, a Production Sharing Contract with the Indonesian government. That's a framework for the project. The basic thinking for the PSC is that in the case of Abadi, the sales are from LNG. We and the government, how would that be shared between the two?
That is what is determined under PSC. Normally, the production income would reflect a recovery of cost invested thus far and what remains the profit. That profit is shared between the Indonesian government and ourselves, and the ratio is decided or predetermined on the contract. That is the basic data contract. But when we raise funds using the framework of the project, then the cost recovery and the profit sharing. In addition to these two elements, when we raise funds, then there is another stream of repayment, and this comes into play. If we were to make repayment under the PSC framework, there is something that is positive. Normally, when we raise funds, then the interest that we pay to the financial institution occurs outside the project. We would normally be responsible for paying the interest.
But if it is included as part of the production stream, then the interest can also be returned from the project. So, we are able to recover the cost in regards to interest. Under the PSC framework, if we actually raise funds, then this is one of the biggest benefits that we're able to achieve. Towards that, with the support of Indonesian government, we are currently feeling around in regards to the potential financing and inclusive of the cost recovery, including the interest rate, we need to look at that for the full project. When we talk about IRR based on this project framework, the financing included would be the basis for IRR. Whether we're going to call this a project IRR or whether we're going to call this the equity IRR, it really does depend on the definition used.
But as I said before, we are using the same yardstick with the Indonesian government to understand the economics of the project. If we are not arriving at the mid to 10% range, then we need additional support. The project, which is the common fundamental element. The fundraising is included as a PSC framework, and we are going to recover cost for the interest under the PSC. That is the assumption. If that's the case, then a certain level of leverage is reflected in terms of IRR. But to what extent the leverage will function, but then, that would be dependent on the actual financing. Then what's going to be the interest rate? Of course, the leverage will become larger if we're able to raise funds inexpensively.
A certain level of leverage is already embedded in regards to what we are thinking of right now. But whether this is going to be large or smaller, it would to extent be dependent on an initiative for financing going forward. So inclusive of that, we are currently looking at mid 10% range of IRR.
Understood. So in that regard, I think it is probably closer to equity IRR.
Yes. But to recognize this as a project IRR, from Indonesian government, this will be the return from the Abadi project. If you ask the same question to Indonesian government, then they probably will say, "This is going to be a project IRR." But from our perspective, we are looking at equity inclusive of leverage. Unless I need to provide an explanation of this type, I could be potentially misleading. So I gave that as our explanation. That was very clear. Thank you very much. That is all from me.
For the next question, Mr. Shoichi Kaganoi will talk about the next part of our session today, which is challenges towards realizing a decarbonized society.
Hello, everyone. My name is Shoichi Kaganoi. I'm from the Hydrogen & CCUS Development Department. In 2021, as INPEX, we have established a new department for decarbonization.
It's been three and a half years now, and we have considered various projects both in and outside Japan. We've been talking with various entities and players. Today, I wanted to give an update in regards to the progress. If we go to the next slide, these are the topics that I want to address today. When we think about new business, it's not that easy, of course. Someone asked about inflation before in a Q&A session, but it is somewhat challenging in terms of cost as well. From number one and number two, we are wanting to focus on support measures. On top of that, we want to talk about a number of the main projects and explain about the status of these major projects.
First of all, in regards to hydrogen and ammonia, in May this year, the Hydrogen Society Promotion Act was established. The official name is longer, the name for this act. Under the new act, there is a Contract for Difference, or there is a support for the physical site. Because these subsidies or support have been defined, they will be implemented going forward. There is a schematic diagram below on the slide, and this explains the Contract for Difference subsidy. The base price, as shown as a red line, is that if we want to supply hydrogen, then we are able to supply if the price at this level. The blue line, based on the existing fossil fuel, what would be the price? In other words, the parity price. The difference between the two is where the price support needs to be provided.
With this support, a new type of business can finally be launched. However, as you know, the national budget is limited. Within the limited budget, we need to somehow secure the subsidy. We are certainly engaged in a lot of discussion both in and outside the company with that in mind. Next, the CCS. The CCS Business Act was enacted in May this year, at the same timing as the previous act. Based on this act, we can finally now work on CCS as a commercial operation. Japan does produce a lot of CO2 emission. If we are needing to transport CCS abroad, as I described at the second point, the ratification of the London Protocol, this was actually done this year at the Diet. We now have the basis for transporting CO2 overseas.
We are able to store CO2 overseas, if we are able to come to an agreement between the two countries going forward. There is an illustration at the bottom of the slide, and this is a chronological development from left to right. Before operation is where the government is responsible for. Where the CCS is going to be located and who would be the operators is decided. The next part during operation, and we are thinking of INPEX being the operator here. We will be doing the injection and storage, and we will monitor that it is actually stored properly. We will also have obligations to make sure that the CO2 is stored without a problem.
After that, we confirm that, then we will transfer this to the government, and JOGMEC will, on their behalf, will continue with this type of business going forward.
Moving on to the next page. There are a couple of things that we picked out, and this is the project progress of couple of projects. Top is the blue hydrogen and ammonia production and usage at Kashiwazaki City of Niigata. Underneath that is the world-class e-methane pilot project. This is where there is good progress in construction. Underneath that, you have the commercialization. The first is the advanced CCS project, which I will explain in detail after this slide. After that, we also have the ammonia as clean energy brought from overseas like Texas. Domestically, we have in Niigata, the footprint. As a footprint, we have one in Niigata. With this, how we can reduce the CO2 or decarbonize these are the projects we have on hand. The next page. First is the advanced CCS project.
This time, there are nine projects where we are working on these candidate projects, and that was selected by JOGMEC. Among those nine, two are where we have involved. One is the Tohoku region, West Coast CCS, and the other one is the Metropolitan area CCS. For the Metropolitan area CCS, INPEX is to lead the project. We will be working as a leader, and that is how the project will be proceeded. The next slide talks exactly about this Metropolitan area CCS project. This is a rough map. In Chiba, there is top one, two emission in Chiba Prefecture. In the Tokyo Bay area, as you can see, the emission source is where the CO2 will be put together and using the CO2 pipeline, will be brought outside to the ocean.
On the coastal area or in the bottom, at the 1,000-m depth, there will be CO2 storage. On the right-hand side, you can see some drawing. For example, the steel plants, the power plants, and those ferrous plants are where the CO2 will be captured and separated. Those CO2 will be transported through the pipeline and then brought to the outside area, coastal area of Chiba Prefecture. Using the wells, it will be brought underground, using the compression facility. 2030 is when we are targeting the start, and that is where we are changing our gears today. Official contract is signed, and the other day, we also had a press release announcement. For this project, out of the nine candidate project, which was selected, this is one of their project that was selected first, as a first step.
As a government, we have the focus on this project as well, and we would like to work hard with our full efforts. Followed by that, we have another one, which is not project, but this is a demonstration project. On the left-hand side, it is as of September last year, as we showed in the Investor Day of last year. If you go to the right-hand side, there is a bigger picture where you can see the current status, which is becoming more like a plant today as of August. There are a couple of points explaining. On the left bottom, you can see hydrogen power generation. This is 100% utilization of hydrogen and the gas engines are already being installed. The CO2 compression and also the hydrogen production facilities and also the CO2 collection facilities, these are all laid out.
Actually, on the backside of this picture, you can see there are two pillars. These are, one is for the wells, for the CO2 compression to the underground, or by injecting CO2 underground, the gas that is coming out from that process will be collected. Regarding CCUS, these are the wells related to CCUS. The other facility, underneath that facility is exactly where INPEX had a gas field where the gas was produced. The old well is filled and the extra CO2 is being trapped, so it will not come out. These are done simultaneously. This is exactly our own natural gas and our gas fields as well as our technology. These are all used. By 2030 and beyond, INPEX is going to have this same supply of energy for the low carbon energy as well.
From this demonstration, we hope we can show and prove to the society. We are planning to start this operation in summer of next year or so. We hope that we can give more details going forward on this project, on this demonstration. That is all for the current situation about the hydrogen, ammonia, and the decarbonization. Thank you so much for your understanding.
I would like to move on to a Q&A session.
Obtaining the support from the government is difficult, and it is difficult competition, like you mentioned. As it is your company, I am sure you can obtain the support. As plan B, your risk, if you are not able to have the support or subsidy, what are the plan B for you?
I am sure you are not going to discontinue these projects just because you cannot obtain the subsidy, but what kind of risk or plans do you have? Thank you.
I guess it really depends on these projects. Depending on some project, we may discontinue in some instances. However, energy decarbonization, you have to look at this over long term or based on certain timelines. Slow down may be one option or downsizing the project there in some wells, it might be possible. On top of that, if we cannot proceed with the project without any subsidy or any support, it might be the case in some cases, but if you add another type of a project together and combine them, it might be possible. As there are many options, we think that discontinuing and stopping project, it will be something we will not do as a developer of energy.
We have to work on various ways and rack our brains on coming up with various options. I think it is case by case, but that is how we like to approach these projects. Thank you very much.
Now, I would like to go into the general Q&A session. The two agenda that we uncovered today, as well as the financial results and outlook for management, ESG, and other projects, you can ask any questions. Anyone who has questions?
I have mainly one question. Today, regarding the LNG and the decarbonization. LNG is increasing, but for the decarbonization, it will be going down. But how much price you will have on GHG, that is going to be the ultimate question.
In your company, the strategy or thinking about the financial initiative, the GHG reduction or emission reduction, I am sure it is difficult to think in a global phase. But in terms of carbon pricing, by having one unit of GHG and absorbing that, having that in a single price, and then if the market works, market economics work, and on top of that, you will be doing business. Whether it is going to be in that way of thinking, or in other words, in an extreme way, that might be one option. But in other countries, looking at the restriction, as you explained at the beginning of today's presentation, each country is not necessarily a single price, and there might be support or restrictions in various countries. Talking about GHG reduction of one unit and one reduction of unit, we do not think it is going to be equal.
In extreme calculation, it does not make sense. But how we are going to have that in the final course is something difficult to question. But for these type of areas, if you think of the future strategy, having a single price, it might be different by area, but having a single price type of approach, and based on that, you will be thinking about the strategy or making investments based on that, is that the case? Or in fact, today, there are various rules and regulations, restrictions in various areas. Based on that, you may follow one policy in one area or the other policy in other areas, whether you will be proceeding in that manner in the next decades. Is that what you are thinking or what kind of approach you are having as a company today, and what you are thinking to do in the future?
Also, all of the executive officers who have appeared initially, if I can ask on what your views are on these projects as well. Thank you very much.
I think everyone has one word. From my side, I would like to mention. This is a very important issue. Talking about CO2, it is something that we did not have to pay to emit in the past. Talking about CO2, making this as a business means you need to have pricing like carbon pricing. That is not clear today in this operation. As a company, the CO2 issue is worked in two phases, and that is how we like to separate discussion. Number one phase is the so-called emission of CO2 by your operation, own operation, and that will be reduced. Whether it is Abadi or domestic Nagaoka gas field.
The CO2 that we emit ourselves is something that we like to offset as much as possible. That is rather natural gas and oil business for an operator doing these businesses. This is a social responsibility. It is a license to operate, and in order to have that operation, the license or equivalent has to be taken. Also CO2 reduction in these kind of activities are basically not a cost issue. As mentioned, that is how we like to proceed in this kind of challenge. Because of that, there is also research in Australia, but already today, the Bonaparte CCS and the drilling of wells, as Okawa-san mentioned earlier, is one thing, and for Abadi as well. The production started from the start of production. We have already CCS activities. Basically, as a producer of natural gas, we think that is the role we play.
The other thing is the metropolitan CCS and those type of CCS activities. With the CCS itself, processing other companies' carbon dioxide, that is one thing. Metropolitan or in the Akita Prefecture, these are one of the representing projects, like selling blue hydrogen, blue ammonia. This is also relating to those projects. For these, for the emission that was done without any cost, we will have to pay the cost. Based on that cost, we have to make sure the benefit is also obtained. For example, how much it costs for CCS, that is another discussion. There are various estimates or calculation, and including the metropolitan CCS, we are doing various calculation today. In Japan, most probably if we are to do CCS, we have to collect the CO2 and transport.
For the metropolitan CCS, we have the pipeline for transportation, but mostly it is done through the vessels over the ocean. That is also one thing we have to do, and then have that injected into the underground. That is a CCS project. If you work on this project in total, the cost for processing that, of course, is different by project, and also depending on the size, it will be different. Mostly in Japan, for 1 ton of CO2 injection, it will be JPY 20,000-JPY 35,000 per ton in Japan. That would be the cost. Who is going to bear that cost, is the question. The steel companies, whether they are going to pay for the cost or the chemical companies will bear the cost. These are exactly the issue around carbon pricing.
In simple way, the steel company, if they want to use CCUS or not, is up to emission. For example, CO2 cost is JPY 20,000, JPY 30,000 per ton. If they emit, and the emission is cheaper, then they will be choosing that cheaper option. There will be a higher cost. There will be more cost for CCUS. For example, carbon pricing, if it is more than JPY 20,000, JPY 30,000 per ton, then that means people will have to pay money, the more they emit. That is what they may choose when it comes to CCUS and blue hydrogen. That is the social system, or I think a typical example is carbon pricing, but also there might be subsidy. In Australia, there is a restriction.
In the case of Australia, there is a mechanism with the government and each year, from a certain amount, 4.9% of CO2 reduction is the responsibility of the operators. If you have more emission than that, the Australia Credit ACCU is something they have to buy in Australia. That structure is in place, so the carbon pricing and those CO2 reduction restriction is in place or subsidies and those might be combined together, but as a whole, CO2 reduction or the market system, is something that needs to be established. That is something that is a precondition for this commercialization. Plan B, there were question about plan B, or if you are unable to have these costs. We have to think of various ways to reduce the cost, of course.
But that mechanism in the market, if that does not exist and we have to do commercialization, we think that is not really practical or is not really possible. In Kashiwazaki, we have the hydrogen pilot project, and this is what we are studying today. It is still under pilot. We are doing a study today. We are paying these R&D costs to study the situation. But when it comes to making this a social system, to create that system, there will be several 10s or several billions or maybe trillion yen of OPEX that will be required. For that reason, that kind of social system has to be established. As a package, these projects will be proceeding, and that is perhaps something that is required in the future.
As mentioned before, for metropolitan CCUS, the FEED costs, including the well cost, overall, the government is to bear these costs in total. The construction of EPC, we go into the construction phase, and then the social system has to be existing then, because it would be difficult to go to FID because of that. We will have FEED period going forward. During that period, we will be receiving government support. That kind of social system preparation has to be made. Based on that, we would like to look at the project and whether they make the economics of the project or not. If they do not, it will not be viable. We would like to proceed a project based on that viewpoint. That is all for me. Takimoto-san, I think, also has an opinion on this.
Yes. Like you mentioned, in any conference, it is a characteristic, a policy that is required, and people will talk about that. Whether it is going to be single price or not, we do not know. But when it comes to social consensus, there will be costs associated to decarbonization. Based on that consensus, adjustments, carbon price, and also the subsidy from the government is something we have to have both dually. We have to decarbonize from the social activities. To evaluate the economics of our project in the country where there is no restriction, we will set internal carbon price. Even though there is a decarbonization, we have to make sure that the economics of the project works, and we have to confirm that to proceed on the new and existing projects. That is the current situation.
Thank you. What needs to be done as a fossil fuel operator, there are things that we need to work on. On the bottom out, the CCS profitability or for Abadi, it is included as the total project, but it may be somewhat different, as a concept. CO2 reduction associated with fossil fuel, when you have to work on reduction, you want to do the CCUS. JPY 20,000 -JPY 30,000 required, it may be different between Japan and Australia, but from your perspective, because you are producing gas and selling gas, then you are probably going to judge that some kind of cost incurred would be inevitable, and maybe some kind of subsidy in the end. If you are asked to do a very tough thing, then to say that it may be difficult for you to produce natural gas. How should we think about that?
That issue, in Australia, because INPEX in Australia and there is a Safeguard Mechanism, which is an environmental regulation that is applied in Australia. Not only for us, but all LNG operators or all the emitters are required to reduce CO2 emission by 4.9% per annum. This is an obligation, if we end up emitting more than that, then we need to buy ACCU, Australian Carbon Credit Unit in Australia. If we do CCS, then we are able to respond to this 4.9% reduction. If we do not do CCS, then we need to buy ACCU, equivalent to several million tons of emission. Within the Australian environment, then to do a CCS would be more beneficial than continuing to buy ACCU, the Australian Carbon Credit Unit. It makes more economic sense.
Also from the social reputation perspective, we may be criticized for just buying credit without doing anything to address that emission. In that regard, we want to work on the CCS. There is no question that cost will be required. In the case of Australia, it may not be as costly as in the case of Japan, that we are trying to drill two wells right now. There will be some kind of cost associated with CCS in Australia. That cost in international market, is it going to be assessed in appropriate way in the international market or the Australian government? Will they provide some support? Right now, the Australian government, in regards to CCS, as part of the gas strategy, they are saying that you can do this.
It is okay to do that, but have not quite gone so far as to say that they are going to provide financial support or subsidy. That is the situation in Australia. If we store the CO2 underground for the CCS. The natural gas with our CCS, would they be traded at a higher price than international market vis-à-vis those gas which does not come with our CCS? Once we have a single price internationally, then irrespective of where you emit or work on emission reduction, the cost is required in a balanced market, that this type of issue should be resolved. At this moment in time, we do not have such a system. As an operator in Australia, do we need to bear cost or would that be reduced through subsidy or in international market?
Low-carbon energy is going to be considered highly, where we are able to enjoy somewhat of a higher pricing. All these situation is dependent on international discussion that progressing going forward. Did I answer your question?
That was very clear. Thank you very much.
Any other questions? Just about that.
Let me just add some more comment about the Australian situation. For us to continue production from Ichthys, we cannot just continue to emit CO2. As I said before, to obtain support from the stakeholder, to continue to receive that support from the stakeholder, then we need to address a CO2 issue. So separate from whether it makes economic sense or not, we need to do CCS. That is the first point. But we are not doing a philanthropic business, so how can we commercialize this? The next point. As I said before, we are emitting 6 million tons of CO2. Then would it make economic sense at that 6 million ton, we need facility at 10 million tons, then we need to source some CO2 from other operators. But we do not have the legal framework fully established, and we need a bilateral agreement between countries.
To bring CO2 from other country, we need to see agreement reached in that regard. But in the case of Australia, the green parties are very strong, and bringing CO2 from other country, there will be likely votes against to a certain extent. But what is important is the countries emitting CO2 or those countries providing solution for CO2. So we will see these type of countries evolving in the future. So in order to convince Australia, then Australia as a nation is going to be providing solution to address the CO2 matter, to provide that on a global basis. Can we not think of the situation from such a large framework? That is the kind of strategy that we are currently speaking with in terms of Australian government right now. I just wanted to add that. Thank you.
I have maybe two things. Number one, the first thing is, over the mid to long term, the LNG supply and demand, looking at the future supply and demand, you have the two major projects, the existing Ichthys and the future Abadi. For Ichthys, it's rather the price disclosure with the existing buyers, and for Abadi, the new marketing. From those regard, considering the global supply and demand, what is your view today? That's one thing I would like to ask. In general, in the late 2030s, there'll be other regions like Qatar. There might be some lax supply-demand at that time, and there are some views around that today.
But based on that perspective as well, regardless of how much long this operation will continue for Ichthys, but the renewal of the pricing, for example, with the existing buyers, and whether you will have some disadvantage with the renewal of the contracts, that might be one thing. Then also with the new LNG Abadi project, the marketing timing is slightly delayed or different timing. I think maybe you don't have to be concerned, but that's number one. The second, for Ichthys, there's some cash flow mentioning about Ichthys. But as a whole company, if you look at the whole company with the oil price and the Forex, if those are kind of a stable pricing and the operating cash flow generation, if you look at the next five years or so, it's not going to largely change. Is that the case?
Or the PRRT and the other costs, considering various costs, that we have to consider some risk factor. Another project, the contribution of production, whether we can expect some upside from other projects. So, if we can share some views around the operating cash flow. Also in the next midterm plan in February next year, we think this will be one of the key points. But the lowering of the interest-bearing debt is progressing quite well. As explained in the previous results announcement, the growth investment and the shareholder return, I think it's a question how to allocate those different areas. But I think you're just going to hammer the midterm plan, so we cannot give details today. But today, what you're thinking about the cash allocation.
First, how much cash in generation you can have is one thing, and how we're going to allocate that in the future. Can you please share your view as of today.
The first, regarding LNG, I'd like to talk about that. First, for cash flow question, I'd like to have Yamada-san explain that, and then I would like to explain that later. First is the LNG supply-demand. Then over the mid to long term, the LNG supply-demand, what is our view on that? There are various discussions on this, but in many market experts, what they say is in late 2020s, there'll be new LNG projects, including Qatar. So there'll be some difference in the supply-demand balance, more supply, and the price will not be so high. That's the view. Then in the 2030s, beyond 2030s, the supply-demand will become tighter quite significantly.
That is the general view that people have today. Our view as well is close to that view. What we have realized recently is that the transition is not that easy. Natural gas or LNG is going to be the core role in the transition period, and that might be extended as a period. More than what we expect, the demand for LNG and natural gas will be stable going forward. Abadi, as you already know, in 2030 is the earliest timing for the production start. Beyond 2030, if you look at the market environment, based on those assumptions, we are doing a lot of marketing discussions today. In that situation, as Watanabe-san explained earlier, today, the non-binding basis is what we have a certain expectation of the amount of supply, and there are more requests exceeding the volume we are expecting.
That's how we have a non-binding agreement. Then going forward, we will go into FEED work for Abadi. In this situation, the non-binding will be converted to binding contract, long-term contract, and that is the necessary work we have to uncover going forward. In that, we'll be discussing more of these long-term contracts. At any rate, 2030 and beyond, when it comes to supply and demand, we think that globally, especially in Asia, there will be increase in demand, and also in Europe, because of the current situation, there's a certain demand. With that LNG supply-demand balance situation, considering all these factors, Abadi as a commercial project is type of project that has enough room to have a successful operation. That is also what we feel in the process of negotiating with the buyers today.
There was a question about operating cash flow. I'd like to explain from my side. In August, we talked about the full-year forecast, and at that time, Forex JPY 148 per dollar and oil price was $80 or so. That would be about JPY 9 billion of operating cash flow. Going forward, if you look at several years, it's before Abadi starts. If you look at the next midterm plan period, the oil price and the Forex, it will largely change based on this assumption. Let's say it's $70 and JPY 135 to the dollar. If you look at that range, about JPY 700 billion or so is the operating cash flow versus the JPY 900 of today. Okawa-san mentioned earlier about the bottom part, but in the Australia we have PRRT where the tax increase burden will increase. That'd be negative.
For Abu Dhabi, we have the increase in productions. That's a positive factor. They'll be offsetting each other, and about JPY 700 billion would be the stable amount. Then Abadi start. After Abadi starts, we'll have investment cash flow, and then 2030 beyond, we'll have the operating cash flow to compensate those factors. That's the image we have. The way to use the cash is as I explained before. We are not at the stage to lower the debt. How to make these investments and also the investment until Abadi start, and also how to have more reward to our shareholders, that's another point. The detail will be in February onwards when we have a new midterm plan. We will have to have more discussions on these points at that time. Thank you.
I have two questions. First question. My question is related to cash flow. You talked about investment, but investment environment, something new, other than INPEX right now, I think you are investing quite proactively in the peripheral area. But for you, I think there is a focus area elsewhere. What is the situation regarding investment for other focus areas? Is that an environment conducive to make an investment? If you could give some explanation about that environment right now. The second question is decarbonization. You talked about challenges towards achieving or realizing the decarbonized society. I think you do receive the government support to an extent, but what are the type of support that you require in addition? Maybe this is something that I should have asked in the previous session, but if you could give some commentary on that, please.
Well, cash flow or the investment environment, how to make that investment right now. As you know, we have five core areas that we have designated. INPEX and Abadi as we have already explained. But, apart from that, we are continuing with selection and focus or concentration in the other core areas. That basic thinking needs to be maintained. Now, on that basis, say for example, Abu Dhabi. For Abu Dhabi, the Abu Dhabi government, by 2027, they want to increase the current 4 million BPD - 5 million BPD of our production. Next to TotalEnergies, we are providing the production increase plan for oil and natural gas. In that regard, we want to engage in proactive investment. We have Lower Zakum and Upper Zakum, and newly, Block 4, a block that we have newly acquired recently, and there for gas and natural gas.
We have been able to make discoveries that could be linked to commercial production. Together with ADNOC, the state-owned oil company of Abu Dhabi, we are currently working on how can we proceed to potential the commercial production. In that regard, Abu Dhabi, our core area, our oil and natural gas, and also new discoveries, there will be potential requirement for investment for increased production, the increase, which should also contribute to a profit. Then for Southeast Asia, apart from Abadi and in Malaysia, we've acquired a block, and we are at the exploration stage right now, and we are working on that right now in Europe. We have also acquired a block in Norway. We've been engaged in those type of activities. Also in the net zero area, in the United States. And there is a project in Houston and in Abu Dhabi.
We also have a project that we're engaged in. We'll continue to work on those types of projects. As to whether the environment is conducive to investment or not, it's difficult to give a straightforward answer, but we'll be focusing on gas. For gas, we want to work on low-carbon gas as much as possible. From the perspective of profit and cash flow, we need to place our focus there as our company strategy. For CCS and hydrogen, the environment in the world, once the environment is prepared, those businesses could become a business that is profitable. That will be what we're working on. Kaganoi-san, do you have anything to add?
In terms of decarbonization, apart from the government support already provided, I think that was what you have asked about. Well, in terms of government, there are two points.
First is, as I have already explained before, the cost, the related support. That would be the first thing that will appear. What we would like to ask for our government anew is to say that something new like this is a good thing. We often talk about this as being a public acceptance. For example, Prefecture A to Prefecture B, if the CO2 is transported, then Prefecture B may say, "Why that we have to accept CO2 from Prefecture A?" If we end up into this type of discussion, then things will not make much progress. In that regard, we are trying to communicate using all sorts of different opportunities, but the government should communicate that we are going to work on these hydrogen and the CCUS.
Then I think the government should engage more proactively in communicating to the people that it is something that the government will work on. Not just the government. Maybe it is going to be the government who will come up with the money, but my town or my prefecture, there need to be benefits for the local government, of course. Say for example, if there is going to be a CO2 pipeline that will pass through a certain town, then that CO2 pipeline, if there is a kind of a tab through which our CO2 could be injected at any time. If that was the case, and let us say a factory could be located nearby, where the CO2 could be injected into that pipeline immediately. The local government can think about the development of their own, the municipality.
These are also something that need to be worked on as a town or prefecture or national government. What we would like to ask for are support in terms of local government is leadership, even if they do not have the money to actually work on that type of initiatives and not depending on others. When it comes to hydrogen ammonia, similar type of supply chain as LNG would be required for CCS. Then reverse side supply chain. We need to collect CO2 and then transport that to the site of storage. That is a kind of a chain that we need to see established. So, irrespective of how much we say that we are going to produce hydrogen or how much we say in terms of being able to store the CO2, just saying that will not enable the business to be commercially viable.
In establishing that chain and maybe not a support for those companies involved in the chain, we need to establish a strong linkage or collaboration in that regard. That is what I am thinking. Thank you.
That was very clear. Thank you very much.
First, I have two questions, but first is about Abadi or compared to Abadi FID. For the FID of Abadi, I think there are less contractors you can select too. If you look at the LNG companies who are doing LNG, there will be higher contingency requirements. In this kind of environment, what is your view today? Earlier, you talked about the cost, or if there is a cost overrun, there will be also support that you want from the Indonesian government. Is that something that you are going to seek for, or you have a different views in the project? That is number one. The second question, as you mentioned about transition. As a company, green bond or transition bond, what is your view today for those bonds?
I think in your company in 2021, you have issued green bond, but you have not done so much green finance since then. CCUS, hydrogen, LNG as a transition energy, if that is also important, a transition bond, regardless of the interest bearing debt level. To have a symbolic approach, I think that can be also issued. What is your view on transition bond? The private public, there are a lot of support today. If you participate in that, I think there will be quite interesting approach. I think that is one thing I would like to ask.
Number one, about Abadi. We are struggling today, and Watanabe-san will mention about that later. Green bond is something Yamada-san will also cover later.
For your question, the first question about Abadi, the contractors or the bidding environment, I would like to explain that.
Like our president Ueda-san mentioned earlier, this is area that we are struggling or having a headache today. I am spending a lot of time today in this issue. It is a good thing and bad thing at the same time, perhaps. Today, engineering company, the contractor market is very tight. On top of that, there are various projects conducted globally. That kind of order backlog is quite high today, and that is the status quo, and that is also our recognition. In that situation, as I explained before, finally, no matter how much cost we will have, we just have to have a discussion with the Indonesian government. That is also true, and that is what we discussed earlier in the presentation, but that is not enough for us.
Basically, we have to also look at the competitiveness to be maintaining the competitiveness of the project, and that is very critical. As much as possible, we will manage the cost and increase the project economics. On top of that, as a last resort, we will have discussion with the Indonesian government, and I think that is how we should approach. In that situation, as there was a question earlier, the market environment is allowing us to do that. In that situation, the FEED or the following EPC bidding process, how to work on these and also how to reach the FID based on this process is something that we are working on a daily basis and having headache on a daily basis. That is what we are thinking today, and just wanted to let you know about the situation.
Basically, the things that we can do within our capability, there is a limit to what we can do ourselves. But with the contractors or the engineering company, how they are viewing the situation is something that we will have to rely or we have to look at their decision as well. But as far as what we can do is to win the order of Abadi. For them will be attractive, and that kind of attractiveness is something we have to increase. I think that is the necessary step for us. In that situation, things we can do is something we like to come up as an idea. From the contractor's perspective, the Indonesian-Eastern part is something that might increase as a burden for these contractors, and we understand that it is a situation in the remote area.
The company taking the order as well as the company, ourselves, placing order and also with the Indonesian government, what is the best way to bear the cost? In Indonesia, we used to have a lump sum contract where the contractor will take all the cost, and that was the EPC basic idea. But with that, there is not so many contractors who will be proactively raising hands to do Abadi. In that situation, the risk, we have to think of what kind of risk we can bear, or what kind of risk that contractors can bear, or the Indonesian government, what kind of risk they can also bear. These are things that we have to think of in the Abadi cost collection scheme. Ultimately, how much cost reimbursement can be made by the government is also important.
Within the three party, appropriate risk bearing and also how to bear the cost, and what kind of viewpoint will be ideal. Of course, for our perspective, we need to keep the economics, we have to keep the cost low, therefore, how to pay these costs is something we have to come up with. Indonesia, maybe in the past, there was some framework that was not used. But we can also think of these possibilities, racking our brains and, with many contractors, EPC contractors, we want them to have participation in the bidding process, and we would like to have that kind of competitive bidding, and that is what we are facing as a challenge today. I cannot give a direct answer right now, but these are things that we hope that contractors and the Indonesian government, we are unfolding daily negotiation or discussions today.
After this meeting, we are also having plans to have discussion about this point exactly with the Indonesian government. This is not an answer to your question directly, but these are issues that we feel on a daily basis and that we are working on this, taking time and working on this challenge today. Talking about the market today, EPC contractor, there are so many projects for the EPC contractors. It is quite a seller's market. For them, they do not want to work on a high-risk project. They do not want to work on a project they do not want to work on. Based on that, with Abadi, which is high risk and remote area, how we are going to win these contractors. There are many issues that these contractors are coming up with the issue in Indonesia.
So, there are some discussion, like local content and how to adjust the local content, for example, is a question. For the contractors, it does not matter on which area they will make these product, but for the Indonesia government, there is still a local content issue. How to really process those things are one area that we have to rack our brains and come up with ideas. Honestly, we are struggling in reality, but that is where we stand today.
Regarding green bond and transition bonds. Earlier we issued the green bond, and then it's been a while since then. But today, green bond, transition bond on a daily basis is not like a market transaction exists every day. But from the previous time we issued and from what we are looking at today, there are some constraints.
It's not necessarily this is always the case, ideal situation. What is the meaning behind the green bond? I think we have to think about this well. Of course, on the asset side it fits green and liability is also green, so we can appeal twice with this, and I think that's attractive. But in the end, upon financing of debt, what is important is the volume and also the periods and the interest rates. Considering all these factors, for the investors, if it's green, it's not like there's some favorable interest, and that's not how the offer is made or the period is more favorable. That's not the case. In total, we have to think of these project and the bonds and including Abadi, the debt insurance will be, a debt financing will be required.
In total portfolio, we have to think of the financing activity. Of course, the green bond, we're not saying we won't do green bonds. So far we have been making a lot of investment in renewable energy. So we have a lot of possibility of doing green bond financing. But in total, we like to think whether it's a straight bond or green bond that's necessary for us. We like to think of this comprehensively. Thank you.
We are nearing the end of the session, so we'll take one more question.
I have one question, a simple question. A while back, you talked about the medium-term cash flow outlook, and Yamada-san talked about how to fulfill or the returns to the shareholders. I think the next mid-term management plan will be announced after February. What other type of discussion are you having internally towards formation of the next, the mid-term management plan? Anything that you're able to speak of in that regard?
Well, of course, we are engaged in various types of discussions, but specifically, we are still not decided. As you have pointed out, we have certain level of our operating cash flow. The repayment of debt, interest-bearing debt is not necessarily their priority right now. So, are we going to use that available cash for returns?
Are we going to use that for growth investment? What are we going to do in terms of the allocation, in terms of return? It could be through dividend or share buyback. How are we going to communicate that, in what way? We have received various ideas from you, and it should be based on cash flow, or we should do more share back and we receive a lot of anti-opinion. We have reflected that in various type of discussion to determine about the course of future, which of course, it's not really appropriate to talk about anything specific at this point in time, and unable to talk about the details at this point in time.
But as far as the reasons the investors are concerned, in August, when we made an announcement, we did this, quite a bold, the returns, JPY 86 billion for dividend and additional JPY 80 billion of our share buyback, JPY 130 billion of return in total. That was reflective of our cash flow and profit level at that point in time. That was certainly a level that was doable from our perspective. I think we probably have been able to respond to the expectation of the investors to a certain extent. Unfortunately, the environment has not been all that positive since then, which is unfortunate. Our fundamental thinking in regards to return, we intend to continue with the approach in the next midterm management plan. Please do not expect that the returns will not be reduced significantly in the next midterm management plan.
We will think of the investors in deciding on the return policy in the upcoming midterm management plan. Thank you.
Thank you very much.