Compared to oil, the natural gas industry in Indonesia appears to be in much better standing. The country’s gas reserves are high, and production is substantially higher than demand.
But if you look under the surface, the industry is facing substantial challenges that could force it to go down the way of oil in the future, according to panelists at the first Indonesian Energy Conference at Hotel Mulia Senayan in Jakarta on April 11, 2017.
“Indonesia is really at an inflection point as far as gas in concerned in today’s market. There are a lot of opportunities. If Indonesia plays well, there’s a lot of upside,” said Vishal Agarwala partner at McKinsey & Company.
“But if you do not capture the opportunities, there’s a very high risk that we go down the same path as liquids, where we become a net importer.”
On the demand side, the industry is faced with issues of slow growth and sustainability.
“Even from power sector, we see that growth of demand, which has been forecasted at 3-4 percent per annum, is just about 0.3-0.4 percent year-on-year,” said Danny Praditia, the commercial director of PGN. “That means it’s only one-tenth of the forecasted demand.”
But McKinsey’s Agarwal said this can and will change.
“There is latent demand. It’s a supply driven market,” he explained. “As long as you make natural gas available at a competitive price, you can easily see demand go up by 20-30 percent.”
The problem then becomes how to bring the gas to consumers, as the industry suffers from a problem of geography and infrastructure.
Indonesia’s gas reserves are in South Sumatra, East Kalimantan, Sulawesi, and West Papua, while demand centers are in Java and Sumatra, according to Satya Hangga Yudha Widya Putra, the founder of Indonesia Energy and Environmental Institute (IE2I), which co-organized the conference.
“We need to have more import terminals as well as be able to integrate and interconnect pipelines,” Hangga said.
Bara Ilmarosa, the LNG industrial consumer manager for Pertamina, echoed this, and added they were looking at solutions such as clustering systems to address the problem.
“In the Eastern part of Indonesia, we have so many islands and the demand is there, so we can make clusters that we supply LNG to with only one vessel. This is to reduce transportation costs,” he said.
The panelists also raised the need for Indonesia to have a national grid for natural gas, but this again faces substantial challenges.
“The length of the country is from Spain to Norway, so I think in that sense it cannot be done by only one institution,” said Sampe L Purba, a senior advisor to the head of SKKMigas.
Despite the challenges, the panelists agreed that natural gas offers huge opportunities for Indonesia, and that solutions can be found.
“Natural gas is the cleanest type of fossil fuel. It emits less than 50 percent of the CO2 emissions of coal,” IE2I’s Hangga said.
While he said renewable energy is the future, it is in fact an intermittent form of power generation that has low capacity factor unless feasible storage solutions are developed.
“Renewable energy has to be backed by natural gas, a form of power generation that has high energy and power density, and a high capacity factor and value,” he said.