LNG Opportunities In Indonesia: Growing Demand, Inadequate Infrastructure

Perusahaan Gas Negara (PGN), a state owned company in Indonesia, has struggled to meet gas demand for local power producers, even though it is an LNG exporter to other countries, with a production figure of 71.9 bcm in 2009.

PGN’s 2010 report states that the country’s total gas demand amounted to 4.86bn scfd in 2010, but distributors could only supply 824m scfd – or approximately 16% of the total – to local Indonesians. The total local gas demand for end user and buyer in DKI Jakarta province was 2,600 mmscfd, but only 800 mmscfd was available, leading to a shortage of 1,800 mmscfd.

Indonesia's decline in gas supplies has triggered the need for a comprehensive import plan. However, many obstacles still exist. The most salient, and glaring, challenge of inadequate LNG infrastructure – in particular, LNG receiving and re-gasification terminals – still remains. Facing the conundrum of a gas shortage and lack of receiving terminals, Indonesia declared its own gas crisis, and presented an investment avenue for potential businessmen. 

“Our gas crisis is a good business opportunity for investors,” Ari Rahim, Managing Director at PT. Khatulistiwa Mandala Energy, said at the World LNG Series Asia Pacific Summit. “Right now, we’re looking for investors to build LNG receiving and re-gasification terminals (LNG RAR Terminal) on the Damar Island, which is north of Bekasi.” Talks have been held, and there are signs of a possibility of importing Indonesia’s first batch of LNG supplies.

Rahim also cited another reason for the culmination of the gas import plan: a decline in gas supplies for the Gas and Steam Power Plant (PLTGU) Muara Tawar. Designed to break the “deadlock” amidst the uncertainty, the gas import plan helps to alleviate Indonesia’s gas crisis. Furthermore, the Indonesian government gave a subsidy of rp. 11.4 trillion to investors as a result of a decline of gas supply of 389 tbtu to 320 tbtu. Delays in the operation of the Floating  Storage and Re-gasification Unit (FSRU) have triggered the need of an additional subsidy of rp. 2.6 trillion. Thus, what is clearly evident in Indonesia’s pursuit of natural gas is the government’s employment of policy tools to help subsidize the development of the use of this energy source – suggesting a favorable environment for natural gas users, buyers and suppliers.

Although Rashim has mentioned both the LNG RAR Terminal and the FSRU, he appears to champion the LNG RAR Terminal over the FSRU. He adds that the industries located in the Jakarta area will be “very large,” indicating that the gas crisis can be seen as a business opportunity for many if investments are made. The LNG RAR Terminal project on Damar Island in Jakarta is estimated at a cost of “USD1,2 00million,” according to Rashim.