JAKARTA – Indonesia’s state-owned Perusahaan Gas Negara (PGN) is seeking investors for seven new initiatives in a clear sign the country will be falling back on its rich reserves of natural gas to ease the difficult transition from coal to renewable energy over the next three decades.
Among them are more gas-fired power stations, particularly in central and eastern Indonesia, the development of regional liquified natural gas (LNG) hubs and new floating storage regasification (FSRU) plants, and the increased use of LNG for bunkering and sea transportation.
PGN director of sales and operations Fariz Aziz says his enterprise also wants to build a gas-based methanol industry, along with bio-methanol processed from palm oil liquid waste, and to expand citywide pipeline networks for domestic households.
The US and 20 other countries have pledged to stop funding foreign fossil fuel projects with “limited exceptions” by the end of 2022. But while coal is clearly the main target, little has been said about natural gas as a so-called “gray” alternative.
Pointing to what could well be Indonesia’s way of the future, natural gas already contributes to 40.5% of America’s overall utility-scale electricity generation, followed by coal (19.3%), nuclear (19.7%) and renewables (19.8%). In Britain, gas is 42% of the energy mix.
Indonesia trails on 18.5%, despite reserves of 20-30 trillion cubic feet (TFC) of gas readily accessible on the islands of Java and Sumatra.
Total proven reserves are put at 96 TCF nationwide, but that includes the 45 TFC Natuna D Alpha field, which remains undeveloped 50 years after its discovery because of dangerously high levels of CO2.
Indonesia has estimated it will need to invest US$150 billion to $200 billion a year in low carbon programs over the next nine years to meet its stated goal of reaching net-zero carbon emissions by 2060 or earlier.
Speaking at the recent COP26 conference in Glasgow, Finance Minister Sri Mulyani Indrawati said using the state budget is out and that Indonesia will be depending on financial help from multilateral institutions, the private sector and the developed world.
“The world is asking us, so now the question is what the world can do to help Indonesia,” she said, answering critics who question the viability of Indonesia’s future energy plans. “Retiring coal early will cost us, then it will also cost the people and it will cost industry.”
The disappointing outcome of the Glasgow conference showed how difficult it is going to be to raise funding from wealthy nations, who used coal to reach developed status and now demand that developing world countries forego it.
Indonesia has said it intends to retire 9,200-megawatts (MW) of coal-fired power by 2030, a decade earlier than the schedule laid out in the country’s Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR).
But while President Joko Widodo now wants to bring forward his stated target of phasing out coal altogether by 2040, experts say it will take a lot longer given the low cost and daunting opposition from Indonesia’s powerful coal lobby.
What may help is that electricity demand growth for the next decade is expected to average 4.9% a year, lower than the 6.4% projection under the previous 2019-2020 plan. Last year, the Covid-19 pandemic saw growth in demand fall to a negative -0.79%.
Coal comprises a whopping 67% of state power company Perusahaan Listrik Negara’s (PLN) energy mix. Under current PLN planning, coal for power generation will be reduced to 55% by 2025 and 47% in 2038, by which time renewables are supposed to account for 28% of electricity generation.
PLN’s long-awaited 2021-2030 Electricity Supply Business Plan (RUPTL), issued last month, envisages adding 40,600MW of new power by 2030, but that will include 13,8129MW in additional coal-fired capacity already under development.
In fact, the utility predicts that coal consumption by both PLN and independent power producers will rise by 5.5% next year, from 102.5 million tonnes to 108.1 million tonnes, more than half of which will be made up of so-called “low rank” deposits.
Under the RUPTL’s procurement plan, consumption will decline slightly to 114.3 million tonnes in 2024, but with additional new mine-mouth plants coming on stream, it will continue rising again until it peaks at about 141.5 million tonnes in 2030.
The RUPTL plan expects renewable plants to take up an ambitious 20,900MW, or 51%, of the new capacity, built mostly around hydro (10,391MW), geothermal (3,355MW) and solar (4,680MW). Reaching those targets, however, will rest on the supply-demand balance and what the plan calls “economic considerations.”
Analysts say the government needs to deliver on urgently-needed reforms and improvements in the regulatory framework through passage of the New and Renewable Energy Bill, currently before Parliament, and a long-delayed presidential regulation on tariffs and procurements for renewable energy projects.
PLN finance director Sinthya Rosesly says the utility is preparing to launch a sustainable financing framework in its efforts to raise as much as $500 billion from three different bond issues over the next four decades to develop green energy and decarbonization.
But it will be no easy task. One experienced Jakarta-based consultant says apart from hydro, which includes the 7,200MW Kayan project in far-off North Kalimantan, other renewable ventures are currently burdened by significant cost, technology, regulatory or bureaucratic issues.
Natural gas makes up 14% of planned new generation, or 5,833MW, with the RUPTL envisaging the fuel rising to 22% of the national energy mix in 2025 and 24% by 2050, filling an energy gap that experts feel can’t be realistically filled by anything else.
PGN is close to commissioning Java-1, the first project of its kind in which an offshore floating storage regasification unit (FSRU) will pipe gas directly to a newly-completed $1.4 billion, 1,760MW power plant at Karawang, on the eastern edge of Jakarta.
A subsidiary of the Pertamina state oil company, PGN wants to install at least 12 FSRU’s in strategic locations across the country where electricity demand currently exceeds supply and there is no pipeline, an expensive alternative in Java at least.
But as its main customer, PLN has decided the economies of scale don’t work for a once-heralded “milk run” concept where small LNG carriers would provide the fuel to more than 50 small converted diesel stations in eastern Indonesia.
Indonesia’s total investment in the oil and gas industry last year amounted to $10.52 billion, according to upstream regulator SSK Migas. But low oil prices and the Covid-19 pandemic has further slowed spending on development wells to $1.6 billion and exploration to barely $500 million.
The only promising new gas target is the three Andaman blocks 150 kilometers off the northern Sumatra coast, where Repsol, Petronas, Harbour Energy and Mubadala are proving up a field that could hold by conservative estimates 4-5 TCF, potentially making it the largest find in Indonesia in decades.
Most of the focus is on Repsol’s much-anticipated drilling of the Rencong-IX wildcat well, which experts say could provide the first clue to unlocking the deeper areas of the North Sumatra basin stretching from onshore Aceh into the Andaman Sea.
Although the exploration is technically in frontier waters, it is not far from the wells that fed Mobil Oil’s old Aceh six-train plant which launched Indonesia into the global LNG export trade in the 1970s and was finally abandoned in 2014.
At depths of 1,500 meters, and with little known about the levels of CO2 and other impurities, a major find is likely to force the government to relent on its policy of capping the price of domestic gas at $6 per million British Thermal Unit (MMBTU), introduced as a cost-cutting measure for small manufacturers.
The presence of Arun’s Lhokseumawe’s old port and other infrastructure could prove useful in piping the gas down through Sumatra to link up to an existing pipeline network in South Sumatra, which already supplies gas to power stations and industrial sites around Jakarta.
Sluggish exploration aside, Indonesia still has abundant natural gas to call on, from East Kalimantan’s Mahakam field to BP’s Tangguh operation in Papua’s Bird’s Head region and two producing blocks in Central Sulawesi, which supply their feedstock to three dedicated LNG plants.
Elsewhere, Pertamina is now developing East Java’s 2 TCF Cepu gas field, which will feed into a 370-kilometer pipeline that currently supplies gas from a series of small offshore fields to power stations in Pasarun and Gresik and a range of fertilizer and cement factories.
Italian oil giant ENI still has to lay out a development plan for Kalimantan’s $7 billion Indonesia Deepwater Development (IDD) project it is taking over from Chevron as the US oil company closes the door on its 90-year association with Indonesia.
Covering four production sharing (PSC) blocks at depths of up to 2,000 meters, the Makassar Strait field contains proven reserves of 2.6 TCF, which like the Mahakham block further south would be supplied to the long-established Bontang LNG plant.
That may depend, however, on the addition of more production trains to the two still in operation. Bontang opened in 1977 and at one point had eight trains processing 19.5 million tonnes of LNG per year, most of it for the North Asia market.
Efforts to develop the Masela gas field in the Arafura Sea have come to a halt since Royal Dutch Shell withdrew from the 18.4 TCF venture following the government’s decision to reject its plan to use floating LNG technology instead of a 180-kilometer pipeline.
Japanese operator Inpex Corp still claims to be proceeding with plans for an onshore processing facility on the remote Tanimbar Island, 2,700 kilometers east of Jakarta. But industry experts say it will need a new partner to take on the $20 billion venture –and favorable market conditions to make it commercially viable.