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Status and outlook of natural gas industry
development in Indonesia

Article in Journal of Natural Gas Science and Engineering · February 2016
Impact Factor: 2.16 · DOI: 10.1016/j.jngse.2015.12.053

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Widodo Wahyu Purwanto Yoga Wienda Pratama
University of Indonesia University of Indonesia
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2. . . . . . . . . . . Yoga Wienda Pratama a. . . . . . . . . . . . . . . . . . . .ac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .053 1875-5100/© 2016 Elsevier B. . . . . . . . . . . . . . . .org/10. . . . pricing and 30 December 2015 regulation. . .5. . . . . . . . . . . . Method of projection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indonesia c Perusahaan Gas Negara (PGN). . . Domestic gas market and pricing . Journal of Natural Gas Science and Engineering 29 (2016) 55e65 Contents lists available at ScienceDirect Journal of Natural Gas Science and Engineering journal homepage: www. . . . . . . . . . . . . . . . . . . . . . . Rezki Anindhito c a Department of Chemical Engineering. . .1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 2. . . . . . . . . . . . . . . . . . . . . . including reserves. . . . . . Faculty of Engineering. . and effective domestic gas pricing mechanisms are necessary to assure the successful expansion of gas uti- lization in the country. . . . . . . . . . . . . . . . . . .2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ui. . . . . . CO2 emissions reduction . E-mail address: widodo@che. . . . . . . . . . . . . . . . . 56 2. . . . . . . . . . . . . . . . . . . . . . . . which contributes to Received 17 September 2015 economic prosperity and reduces reliance on petroleum fuels. . . . . . . . . 56 2. . Systematic support and clear policy guidelines. . 60 3. . . . . . . . . . . . . . . . . and identifies the bar- Accepted 31 December 2015 riers to and regulatory remedies for further development. . . . . . Indonesia b Department of Economics. . . . . . . . . This paper reviews the current state of the Received in revised form natural gas industry in Indonesia. . . . . . . . . Gas production. . . . . . . . . . . . . . . . . The projection results show that Natural gas industry the domestic gas demand will increase significantly. . . . . . . . . . . Yuswan Muharam a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jakarta 11140. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . infrastructure. . . . . . . To fulfill that demand. . . . . . . . . . . . Djoni Hartono b. . . . . 59 3.id (W. . . 59 2. . . . . . . . . . . . Gas demand projection . . . . . . . . . . . . . . . . . . . . 58 2. . . . . . . . . . . . . . . . . . . . . . . . .4. . . . . . . . . . . . . . . . . 60 3. . . . . . . . . . . . . 63 * Corresponding author. . . . . . . Infrastructure and investment . . . . . . . . . . . . http://dx. . Universitas Indonesia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . supply and demand. . . . . . . . . . . . . . . . Natural gas infrastructures . . . . . . . . . . . Gas reserves . . . . . . . . . . . . . . . . . . . . . . . . . . .5. . . . . . . . with gas demand in 2025 being approximately Indonesia double to triple that in 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the speed of gas infrastructure development has been slow and gas production is Outlook declining due to aging gas fields without significant new gas production. . . . . . . . . .4. . .elsevier. . . . . . . . . . .3. . 63 4. . . . . . . . . . . . . . . . good bureaucratic performance. . . *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purwanto). . . . . . . . . . . . . . . . . consumption and export . . . . . . . . . . . . . . . . . . Faculty of Economics and Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .V. . . . . 62 3. . . . . . . © 2016 Elsevier B. . . . . . . . achieve a cleaner energy mix portfolio and assist in moving away from oil subsidies. . . . . . . . . . . . Universitas Indonesia. . . . . . . Harimanto Soedirman c. . . . . Indonesia needs to attract substantive investment for future gas infrastructure and upstream gas exploration and exploitation of new gas fields. . . . . . . . . . . . . . . .3. . . . . . . . . . . . . . . . Depok 16424. . . . . . 60 3. . . .12. All rights reserved. . . . . . . . . . . . . . discusses the outlook and path forward for the country's gas sector. . . . . . . . . . . . . . . . . .V. . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .jngse. . . . . . . .6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All rights reserved. . . . . . . . . . . . . . . . . . . Current state of the natural gas industry in Indonesia . Building the scenarios . . . . . . . . . . . . . . . . . . . . . . 56 2. . . . . . . . . . . . . . . . . . Gas supply-demand gap projection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory framework . . . . . . . . . legal clarity and certainty. . . . 63 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depok 16424. . . The government has struggled to balance Available online 4 January 2016 domestic demand with exports with respect to the country's natural resource management and to respond to sensitive issues involving changes in oil and gas law that aim to prioritize gas for domestic Keywords: Status usage. . . . . . . .1. . . . . . Barriers and challenges for gas development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meanwhile. . . . . Contents 1. . . . . . . . . . . . .com/locate/jngse Invited Review Status and outlook of natural gas industry development in Indonesia Widodo Wahyu Purwanto a. . . . . . . . . Future outlook of Indonesia's gas industry . . . .doi. . . . . . . . . .W. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1016/j. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3. . . . Indonesia a r t i c l e i n f o a b s t r a c t Article history: Indonesia has been facing dramatic changes in natural gas industry development. . . . . . . . . . . . . . . . . . .2.

. . . . . . in the early 1970s. . gas production was used for the first fer- gas utilization is still struggling because the main gas supply is far tilizer industry in Palembang. . . Fig. 65 1.b). . . . . . . . . . In many areas. . . . . . and Indonesia is also the limited gas production and the opening of three regasification world's largest LNG exporter. . . . . . 2014a. . Natural gas has been found in Indonesia since the 18th century. . and after reform energy ture. The government will face China. . . the first LNG Terminal located in the Java Sea began operation subsidies announced in early 2015 which include the removal of in 2012 (MEMR. Donggi-Senoro. and the sector is characterized by a relatively well- understood regulatory framework. . and due to the sparse gas moment in the development of the Indonesian natural gas busi- infrastructure and geographic archipelago of the country. . . . . PGN distributed natural gas Pertamina Gas (Pertagas)). . In 1977 a first LNG shipment was sent to Japan from Badak in the national energy mix in 2025.21 TCF. . . . . . increase in the share of the domestic supply allocation of total LNG is one of the important businesses for Indonesia. . followed by the first shipment from Arun LNG plant in MMSCFD or an additional gas supply of 3000 MMSCFD above the 1977. . but it also boosts national economic growth (PwC. 2014). . . . 64 Acknowledgments . . . . . A brief history of Indonesian natural gas subsidies on gasoline and the introduction of a fixed subsidy for industry development is shown in Fig. . . After independence. . . . . . . . . . . . . . . but the midstream and downstream sides are still dominated gas from the Java Sea offshore gas fields and Cirebon to the in- by two national gas companies (Perusahaan Gas Negara (PGN) and dustrial area in West Java. . Indo. . . . 1. . 1. . . PGN then operated the Grissik-Batam-Singapore gas (PGN. . . . the government currently ranking 4th (BP. . . . . . supply and Business Activities (Migas. . . and Arun field in Aceh by Mobil Oil government plans to increase domestic natural gas usage as stated in 1971. . Indonesia held proven reserves of demand. . . . . . . . . . . Gas reserves in combination with low oil prices. However. . 2014a). . while the government has adopted open in Jakarta City in 1978 and in Bogor City in 1981 and then expanded access and unbundled the transmission and distribution of gas to other cities. 2014). 2014). . . . . . . . with the discovery of gas reserves in Badak field in East Kalimantan In response to the rapid growth of Indonesia's economy. The new LNG plant. . . 2015). . . including the 2. which ness. . including reserves. . but the rise in gas consumption in nationalized the company into a state gas company (PGN) and the the country follows rapid economic growth. . . . To counter infrastructure (OIES. . . . . 2013). The Indonesian LNG business started terminals. . . . does it contribute to national revenues. schappij (NV. . . . . . . . . as the production and a drop in the percentage of LNG exports due to largest contributor to state revenue. . the government has opportunities to divert the savings from subsidy expenditures for gas infrastructure spending. years. . . . . . . . . . bumulih to Palembang. . . . Additionally. . . . . . . . . . . South Sumatra. pricing. Introduction barriers to development. . . . . Purwanto et al. . . . . . Despite those challenges. . in 2009. . . . the commercialization of natural gas began in the 1970s. ergy and Indonesia is one of the largest natural gas producers. . . . . . . Indonesia has ernment and given the name Nederlandsch Indische Gas Maat- been one of the world's largest LNG exporters for three decades. as 1974 was marked by the construction of Indonesia's natural gas industry structure is characterized by an gas piping systems from Limau field to Prabumulih and from Pra- oligopoly in which there is competition in the upstream gas pro. . . . . . . . . . . . . . . . current domestic supply (MEMR. including 12% of the state When oil prices soar. . with the target of a 22% share of natural gas gions. . . . 2015). In 2013. . . 2015). . . . . . . . . . . . . . . . . 2 shows . . . . . . . Pertamina supplied the ducer. . Those three LNG plants used an integrated PSC challenges reaching this target. . . . . . . . . . . . . . based This paper intends to review the current status of natural gas on data from the Special Task Force for Upstream Oil and Gas industry development in Indonesia. . . not only however. . . . . . . . and to discuss an outlook and path for- ward for the country's gas sector to bring gas to unmet demand Indonesia's oil and gas industry has a long history of over 100 centers and to support a portfolio with a cleaner energy mix. . .J. . . . three years later. . . . . especially the difficulties of scheme. the by Huffco Inc. . . . . .77 TCF and potential reserves of 50. gas pipeline dates from the Dutch colonial era in 1859. nesia's oil and gas industry continues to be a vital sector. Conclusion . In the last few years. . this share is equivalent to 8300 LNG plant. . . . with firm I. . . / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 5. . . . . . . . LNG Tangguh Plant in Papua sent the first shipment to Fujian. . . . . . . .56 W. . . infrastructure. . . . began operating in balancing domestic gas demand with exports and limited gas 2015 using the downstream or non-integrated scheme. 2015). . the government also gains momentum to increase domestic natural gas usage while cutting Indonesia possesses the fourteenth largest proven gas reserves the country's reliance on oil in supporting national sustainable in the world and the third largest in AsiaePacific. . In the same year. In the independence. . . . enced a rapid increase. NIGM). . . . . at the time of allocate a larger gas production to supply domestic gas usage. . exporter to a net gas importer country to meet its fast-growing This field has non-associated gas reserves which were discovered in domestic demand (PGN. .W. . . . As a traditional LNG exporting country.6% of the worldwide proven gas reserves (BP. The natural gas utilization in Indonesia subsequently experi- means the gas market is fragmented. . . . Indonesia is predicted to turn from a net gas Southern Sumatra (which then changed its name to Pertamina). . . . 2014a. MEMR. Current state of the natural gas industry in Indonesia production sharing contract (PSC) model and the commercializa- tion of LNG. the domestic gas market has transmission pipeline in 2003 and the transmission pipeline from experienced dynamic development characterized by a significant South Sumatra to West Java in 2007 (MEMR. the gas was produced by Stanvac Indonesia in next few years. 2014a. . . .b) and ongoing changes to oil and gas the domestic gas supply shortage and limited pipeline infrastruc- law (IPA. . . Gravenhage later taken over by the Dutch gov- industry has been experiencing dramatic changes. . . . . . . . . . . . . . . . . . . . . domestic 1958. . . . 2. This is an important away from the central consumer location. . 2015). . . or an estimated energy policy (OIES. diesel (IISD. . . Furthermore. countries worldwide look for alternative en- budget in 2014. . The country must state electricity company (PLN) in 1965.1. 65 References . . governmental regulation and 99. . . . . . . . . . . . . Indonesia's natural gas Eindhoven & Co. . . which then pursued LNG plant construction in both re- in the 2014 Energy Law. . . . . . . The 2014). . Indonesia has been an international pioneer.

History of Indonesia's gas industry (adopted from MEMR. East Kalimantan. Fig. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 57 Fig. Purwanto et al. . West Papua. 2015). 1.b). estimated to contain 46 TCF offshore from Natuna. 2004e2013 (MEMR. Fig. W. Indonesia's gas reserves (adopted from Migas. 2013). Indonesia's gas reserves. The majority of gas reserves are located the Southeast Asian Nations (ASEAN).W. 2. South Sumatra. 2014a. Indonesian natural gas demand and production. and of recoverable reserves with a high carbon dioxide content (71%). 3. The Natuna D-Aplha gas field is the largest gas field in which are largely undeveloped. Masela.

8 2012 Floating Operation Lampung LNG 1. The PGN transmission network covers has imposed a larger allocation for the domestic gas market of Southern Sumatra and Western Java (SSWJ) as well as Northern approximately 25%e40% of the approved gas production (MEMR. Cirebon. Taiwan Donggi-Sonoro LNG plant is opening in 2015.5 2018 Floating Planned Banjarnegara Banten 4 2017 Onshore Planned .1994 Train G. the government introduced business projects.4 1983 Stopped Train 6 2. This trend shows that domestic demand tion in 2014 with capacity of 1.8 2009 Operation Train 2 3. 2010. (FLNG) in the Arafura Sea. Central Java 1. are the industry sector.B 6.5 4. production in 2013. Bogor. After 36 years of LNG production. Karawang. additions to its LNG terminals.8 MTPA and started receiving LNG cargo in from 25% of total production (1437 MMSCD) in 2004e53% (3699 2012. Field Reserve (TCF) LNG plant Capacity (MTPA) Start-up year Status Arun 19. and the Arun LNG terminal. and the gas production was exported. domestic demand has been greater Tangguh Train 3 in west Papua and Abadi Masela Floating LNG than exports (53%). Multinational corporations such as Total E&P.3. Vico and Exxon Mobil hold the largest shares in only four trains still operating. which states that mented systems.55/2009 for DMO gas. mission and distribution network has a total length of approxi- lation No. With the decline of conventional gas reserves. with demand rose. The country's combined pipeline trans- domestic gas market.5 2020 FEED 2. the power generation and 4336 km of transmission networks. Indonesian gas pipeline networks have been developed based on To secure the national gas supply. Central Java (Table 2). began opera- MMSCFD) in 2013 (Fig.8 2009 Operation Train 3 3. Jakarta. Gas production. The only approximately 0. which includes 3700 km of distribution networks DMO. Arun.H 2.8 2014 Floating Operation Perta Arun Gas 3 2015 Onshore Operation Cilacap. For recent gas projects. the upstream gas sector (Migas. The Lampung FSRU.9. and declined to 6900 MMSCFD in 2013 due Tangguh and Donggi-Senoro) with a total capacity of 43. no significant tons per annum (Table 1). Those LNG plants will open in 2019 and the country continues to be a major exporter of natural gas while 2020. Bekasi. and the gas distribution network covers Palembang. 75% of Indonesia's Two trains of Tangguh LNG were in operation in 2009. the country has planned two excluding LPG. The developed gas networks are located mostly 25% of natural gas produced from the PSC contract must supply the near consumer centers. enhanced oil recovery Cilacap. floating storage and regasification unit (FSRU) was built in Jakarta The domestic gas utilization. Natural gas infrastructures Indonesia's gas production increased to its production peak in Indonesia currently has four liquefaction plants (Badak. has become a priority for gas utilization as a result of national with a capacity of 3 MTPA.3/2010 to prioritize the domestic gas allocations from mately 8363 km.3 5. (EOR) and private use (5%).6 1983 Train E. 2). South Korea.D 4. including LPG. resulting in At present. 20). Badak LNG. mainly to Japan. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 Table 1 Summary of existing and planned LNG plants in Indonesia. Masela 18 Train 1 2. The state-owned oil and gas Arun LNG plant closed in 2014 and was converted to a receiving and corporation (Pertamina) accounted for less than 13% of natural gas regasification terminal. respectively (IGU.58 W. the largest LNG plant. consumption and export 2. the new reserves have been found (Fig. Batam. the fertilizer industry. West Java. including for fertilizer (31%). Medan. located in South Sumatra. 2013). As part of economic growth. at 7500 MMSCFD.1999 Tangguh 17 Train 1 3. 3.04% and 0.2. The country has plans and China. Gas Indonesia lacks an extensive gas pipeline network because the utilization for transportation and households is still far smaller. has dramatically decreased production. 2013). and since 2013. 2.7 Train 1.W. respectively. 3). mainly for EOR. and followed by the electricity sector (14%). Currently. Purwanto et al.8 MTPA. thus. efforts to meet domestic gas demand. at major gas reserves are located away from the demand centers. Sumatra. The export share then decreased while the domestic to construct new liquefaction plants in the remote regions. they are composed of a number of frag- Government Regulation No. while the rest is exported (50%).5 1989.5. 2015).5 1986 Stopped Badak 14 & 26 Train A.2. PGN operates the country's sector and other industries. Table 2 Existing and planned LNG terminals in Indonesia. from eight trains owned to Conoco Phillips. Terminal name Capacity Start-up year Type Status (MTPA) Nusantara Regas 3.4 1977 4 trains are stopped of 8 trains Train C. The government then issued Ministry Regu.F 2. In 2013. due to a shortage in the gas supply. In 2004.8 2019 FEED Donggi-Senoro 3 Train 1 2 2015 Operation Abadi.7 million to natural production declines in Java and Sumatra. located in Banten. Banten. addressing the fast growth of domestic gas demand. The first lower availability of natural gas for export. BP. the government dominant networks. opened in 2015 (IGU.01%.1 1978 Stopped Train 4. increased sharply Bay with a capacity of 3.3 1998. Indonesia operates three LNG terminals. the major domestic users of natural gas.

The growth of gas distribution pipeline infra.4.39 per MMBTU. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 59 Fig. 2. Surabaya. Northern Aceh. The Tangguh gas price was increased which drives most private investment to trading businesses with due to a new contract agreement in 2014. Regulatory framework The gas industry still shows market development where there is Prior to the production sharing contract (PSC) executed in the competition in the gas producer. W. Fig. Indonesian retail and export price of natural gas. Western Java. PGN. possibly due to a lack of coor. the country adopted two oil and gas stream sides are still dominated by PGN and Pertagas.W. Although contract regimes: concession and ‘contract of work. In general. Domestic gas market and pricing 2. but the midstream and down. and export gas prices. from between US$ 4e6 less risk than gas transport businesses (MEMR. upstream oil and gas business. A large disparity between Gas flow distribution and infrastructure for domestic demand the export price and the domestic price creates a disincentive to and export can be seen in Fig. and to as domestic gas prices. This lation and domestic gas prices which are lower than international regulation provides that oil and resources are state property.5. The export gas Eastern Kalimantan. Pertagas trans. at only 1. 5. Indonesia enacted Law No 40/1960 on Oil and Gas Mining. Fig. Eastern Java. Purwanto et al. 2013. Northern Sumatra. a mismatch between gas sectors. prices. mission networks also include Southern Sumatra. export gas prices are higher than the domestic gas prices for all dination among institutions.5%. referred Banten. Pekanbaru. The domestic average selling price for industry is close to infrastructure planning and gas allocation. per MMBTU to US$ 14. prices refer to the prices of LNG Badak and Tangguh. 4. the structure is very slow. In . 2015). and policy unbundling. the domestic gas market is still hampered by uncertain regu. Natural gas flow distribution routes. Tangguh LNG export prices.’ The concession Indonesia's natural gas industry structure has been open access and regime was adopted from the Dutch colonial era until early inde- the country has unbundled the transmission and distribution of pendence and the contract of work regime was adopted since gas. supply gas to the domestic market (Butler. 2014b). Sidoarjo and Pasuruan. 4. 5 shows the comparison between retail gas prices.

2014a) attempts to show the current gas data Mineral Resources delegated the management of upstream oil and and project Indonesia's gas demand and supply outlook to 2025 gas activities to SKK Migas (Satuan Kerja Khusus Pelaksana Kegia. the largest user of domestic gas is the electricity (Migas. 7%. The government should assure natural gas demand in 2025 is projected to reach 7205 MMSCFD. 2015). Twomey & Mahidin. resulting in a demand of 11.e). Pertamina was set up to function as both an oil and and Economic Statistics 2013 (MEMR. the Agency ports and domestic gas allocation policy.d. law regulating oil and gas activities. 2008). No. MEMR. Gas supply and Independent Indonesian American Oil Company.880 MMSCFD in 2025. transportation. 2014a. LNG export policy remains with the Domestic Market gas law is to enhance the state's role in controlling and exploiting Obligation (DMO) for domestic gas utilization. and an effective domestic gas pricing policy. it is assumed that the business entity (Badan Usaha Milik Negara Pelaksana Kerja Sama government could encourage more aggressive development of gas Hulu or BUMN-K) which is responsible for the cooperation contract infrastructure. Gas demand projection Penyangga or BUP) responsible for managing the downstream ac- tivities by centralizing the compulsory purchase and sale of oil and The HGG Scenario aims to determine the effect of higher GDP gas for the domestic market (MEMR. An amendment to the oil and gas law was drafted by and industry sector. Pertamina and national private companies have fueling station. 2014a. and dis. sectoral demand and exports are based on the Handbook of Energy In the 1960s. smooth transitional provisions and guaranties with respect to with an average growth of 5. the Indonesian Constitutional Court annulled existing gas demand data are approached by assuming the oil de- several provisions in the Oil and Gas law. not an independent regulatory body.c. which may enter domestic markets if and the safe operation of downstream activities (PwC. Contracted gas demand will drop from 3829 MMSCFD in 2013 to The major data and assumptions for this Indonesia Gas Outlook 336 MMSCFD in 2025 (Fig. 6 shows that in the BAU Scenario. the country introduced the 2014e2025. 2009). growth of total natural gas demand is higher. In the HGG Scenario. regulatory agency until the issuance of a new oil and gas law In this scenario. The for the gas sectors (electric. called BPH Migas (Badan Pangatur Hilir national natural gas fields and existing proven and potential re- Minyak dan Gas Bumi). and 2014e2030 (MEMR.6%) and that there is no change in future gas policy. or Special Task Force for (BAU) scenario. Building the scenarios response to the Constitutional Court decision.60 W. This model also considers the planning of existing gas ex- sana Minyak dan Gas Bumi). The projection of gas supply controlled by business licenses issued by the Downstream Oil and also accounts for existing planning and development planning of Gas Regulatory Agency. 7). 2014).b. No. 2014a. Gas supply would include the DMO. when GDP growth is more optimistic (7%) than the current pre- stream oil and gas activities directly through the Ministry of Energy dictions. The first scenario is the Business as Usual tan Usaha Hulu Minyak dan Gas Bumi. 2014) and JICA (JICA. The aim of the new draft oil and prices. which assumes that GDP will grow as currently Upstream Oil and Gas Business Activities) in 2013 as a temporary predicted (at 5. banded BP Migas. domestic LNG supply is not possible. Method of projection mix. 22/2001.1. using two scenarios. Historical gas 2014. and downstream activities are of both domestic and imported gas. LNG receiving terminals and a gas of the work area. 22/2001.b and natural gas company and as a state energy regulator. 2013b. Oil and Gas Implementing Agency called BP Migas (Badan Pelak.3.0%. Pertamina acts as a state-owned needs uses an econometric approach based on demand elasticity oil and gas company focusing only on oil and gas operations. the fist PSC scheme was signed between Pertamina and the annual growth of 5. Bank Indonesia MMSCFD and 1013 MMSCFD. there will be additional potential and planned demand of 3662 diction using World Bank data (WB. In HGG. The BPH Migas regulatory agency is charged serves. arguing that supervision of oil and gas should reside with the state. The new law establishes a state-owned and optimistic reserves (P2 dan P3). (BI.6% for the projection range.. and businesses Table 3. the foreign and private investors. commercial regulatory functions were moved into an independent Upstream and household) to GDP growth (Bhattacharyya and Timilsina.2. 2014). industrial. 2014) with a Scenario will reach 6870 MMSCFD in 2025. with an assumption of average In 2013. 2013). mand regions will switch to natural gas and existing gas planning. Growth and Gas scenario (HGG) aims to show a larger gas role forming the business licensing and supervision functions of up. the President issued multiple Presidential Regulations and the Ministry of Energy and This outlook (PGN. 2013a. without LNG exports and Mineral Resources. through the with a private oil and gas company for exploration and production pipeline. projected average growth rate of 1. The new draft law does not change of the main assumptions used for each scenario are shown in the regulation of downstream oil and gas activities. and there is a gap between domestic and international gas nesian House of Representatives. Several regions with no In late 2012. the average existing investments in Indonesia. In the HGG scenario. Under this oil and gas law. in 2025. In 2001. Fig. but the new draft law creates a buffering business entity to act as an aggregator (Badan Usaha 3. Several privileges for business licenses. satisfying domestic consumption and per.b). LNG imports should be considered based on the potential with assuring sufficient supply of domestic fuel oils and natural gas supply of LNG from abroad. In 3.e. This contract is demand are processed from Gas Balance Indonesia for 2013e2028 the first PSC in the history of the world petroleum industry (Migas. The gas controlled and supervised oil and gas activities under various historical data period is 2004e2013 and the projection period is production sharing contracts. Pertamina both gas reserves are based on SKK Migas data (Migas. Second. may still operate under license. the regional gas demand is dominated by Western Java . The gas supply model uses controls upstream activities and manages oil and gas contractors on the supply-demand gas balance to meet gas demand with supplies behalf of the Government.2%. Purwanto et al. both transmission and distribution. the development of gas infrastructure is the Government and is currently being discussed before the Indo. Future outlook of Indonesia's gas industry ference of 4674 MMSCFD between the two scenarios as a conse- quence of the differences in the GDP growth and the energy sector 3. The potential gas demand in the BAU consist of population growth using BPS data (BPS. i. limited. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 1966. which reduced The gas demand model used for projecting future natural gas Pertamina's regulatory function. the High oil and gas resources. 2012). The nationalistic spirit growth on natural gas demand and to maximize the role of natural of the new draft of the oil and gas law has the potential to worry gas in the energy mix. There will be a demand dif- 3.W. including an LNG plant. respectively. and GDP growth and pre.

Average elasticity of 0. 6.0% Demand Average elasticity of 0. 2014a). and optimistic reserves (P2 and P3). Policy Gas infrastructure development and gas pricing are the same as in the current More aggressive gas infrastructure development policy and effective state. Projected gas demand by status (PGN. domestic gas pricing policy.W. Fig. New LNG development planning is only Gas supply options are DMO LNG. 7. Supply Contracted export LNG is still running. Projected gas demand. 8. Projected gas demand by region (PGN. no LNG exports for new LNG plant for DMO which is used to support domestic need. HGG (PGN. . BAU vs. Assumptions Scenarios Business as Usual (BAU) High Growth & Gas (HGG) GDP growth 5.82 from 2014 to 2025. W. Fig. 2014a).82 from 2014 to 2025 and switching petroleum fuel to gas for regions with no gas demand. development. Based on contracted demand. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 61 Table 3 Outlook scenarios. 14000 Contracted 12000 PotenƟal (BAU) Planned AddiƟon (HGG) 10000 MMSCFD 8000 6000 4000 2000 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Fig.6% 7. Purwanto et al. 2014a).

The total de. scenario. and potential) will not be able to meet the gas shares similar to those in 2013. planned.W. Planned supply will reach a peak in the 2016 to 2019 Domestic gas demand is dominated by the electricity. 698 MMSCFD. Domestic gas demand increases from 3829 supply is equal to 6814 MMSCFD and will decline to 2201 MMSCFD MMSCFD in 2013 to 7205 MMSCFD in 2025. which is 4. 36%.6% higher than the demand growth duce 2 MTPA of LNG. there MMSCFD in 2013 to 1845 MMSCFD in 2025. The shares of the transportation and household stream in 2018. 9. Domestic gas demand increases from equivalent to 65% of the total demand.2% of the national natural gas demand. The existing gas 2025.7%). Gas demand for exports declines from 3666 duction in 2019.4%. To meet domestic demand in this scenario. Purwanto et al. In the HGG scenario shown in Fig. The Donggi-Senoro field will pro. especially Masela FLNG Train 2 in 2019. with an Fig. or an increase of 5. as shown in Fig. This condition will require gas imports of 4214 MMSCFD in 2025. or 289 MMSCFD of gas. and period with the operation of several projects. the total natural gas demand in. respectively. while the supply mand is 8208 MMSCFD in 2013 and increases to 9284 MMSCFD in decreases by 9. Fig. total demand is 4.7% for the 2013 to 2025 period. and the fertilizer in the BAU-DMO scenario. In the BAU Scenario (Fig. gas demand is 9. 2014a). 8. the share of each sector is 41%. Masela FLNG trains 2 and 3 will be available one year ahead of that the industry sector share rises from 30% to 34%.9%. while the transportation sector with a potential domestic supply of only 190 MMSCFD starting in . mand growth is 9. 3829 MMSCFD in 2013 to 11880 MMSCFD in 2025. the average growth of average annual import growth of 19.6%) and Eastern Java & share increases from nearly 0% to 1%. in 2025. the Masela FLNG project coming on 21%.8%). which will start pro- sectors are very small. and the average growth of domestic It is estimated that imports will reach 8546 MMSCFD in 2025. as the average annual demand grows by 5. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 Fig.8% per year beginning in 2019. including exports. shares in 202 are Northern Sumatra and Central Java.9%). followed by Southern Sumatera (20. Gas supply-demand gap projection MMSCFD (38. occurs between 2014 and 2015.4. and LNG Tangguh Train 3. Southern Sumatra is 1336 MMSCFD (18. During the In the HGG with DMO.3%. gas demand in Western Java is 2794 3. South Sumatra to Singapore will expire in 2014 and the Donggi. 2014a). The regions with significantly larger demand for both domestic consumption and contracted export. at 0. Improved infrastructure in the HGG 2025 is still very small. decline in exports. If the gas supply is equal to that in the BAU exported. 10 (a)). Trains 1 and 2 will be on stream in 2018. 9 a).9% per year. These regions In the BAU-DMO scenario (Fig. 10 (b). industry. such as the IDD fertilizer sectors. equal to 47. the average gas de- Senoro field will be on-stream.5%). This would happen creases by 1076 MMSCFD during the outlook period. and project in East Kalimantan.1% per year. sector share rises from 20% to 24%. with (existing. 9 (b) shows that in the HGG scenario. The household sector share in Bali (18. (41. 10. gas supply after 2019 combined will have 79.8% of the total demand in that year. Supply-demand gap: (a) BAU and (b) HGG (PGN. In 2025. the additional potential supply from outlook period. Scenario will provide additional gas demand in all regions relative to the BAU Scenario. In 2025.62 W.4%.9%). the electricity sector share rises from 34% to 39%. Indonesia will begin importing gas in 2014. A relatively large should be an addition of large gas reserves to the potential supply. and Eastern Java and Bali are 714 MMSCFD (21. all of which will be in the BAU scenario. This field is expected to This is because the gas export contract from the corridor block of produce 190 MMSCFD of natural gas for domestic use. Gas Demand by sector: (a) BAU and (b) HGG (PGN.

It is noted that this investment ex- CBM is far from the government's target of 500 MMSCFD.3 billion. . The OpRes scenario as 632 MMSCFD.5 MTPA) to be built Sumatra and East Kalimantan). W.880 MMSCFD by 2025. OpRes scenario requires the least LNG RT bed methane (CBM) will not be predicted because the production of investment for importing LNG. could be achieved for the BAU and the HGG scenarios.5 MTPA). or approximately 2. The main issues are the complex regulation and lengthy bu. This is the greatest challenge for Arun (3 MTPA). FSRU Banten (3 MTPA). necessary to build a 4 MTPA LNG RT in 2015 for the HGG-No Export cessful. LNG plant at US $ 13 billion. Another option is acceleration of the East Receiving Terminal at US$ 6. The Production Sharing Contract scheme 3. which is expected to begin operation in nario. there will be an additional potential gas supply of as much scenario more than is necessary in HGG-DMO. in which the effort crease capability for utilizing domestic gas supply from Masela. Investment required for several supplyedemand scenarios (PGN. However. For the HGG-No Export sce- from 2014 to 2025. In the HGG-No export scenario. Natuna gas development. 11). LNG Receiving Terminal and gas transportation facilities. there will be additional LNG main drivers of gas business are the industrial and electricity Fig. LNG Receiving Terminal at US$ 10.2 billion. Indonesia will become a gas importer MTPA) and additional LNG imports. To prevent reliance on imports. the same amount of investment is required as in the HGG- 2020. another 15 TCF imports (Fig. In the HGG with no export. CBM operations require a greater degree of Fig. the potential gas supply from coal to other HGG scenarios. The exploitation. The joint consortium of Pertamina-ExxonMobil-Total-PTTEP CNG fueling station at US$ 0. shows relatively less infrastructure for LNG RT than for HGG-DMO ported gas because the annual demand is much higher than pro. including LNG plants minal. However. Compared For unconventional reserves. which is characterized by a large potential gas demand (Java-Bali. cludes the investment for upstream gas exploration and the current Indonesian CBM production is less than 1 MMSCFD. a gas. it is to accelerate potential gas reserves into proven reserves is suc.5 the HGG with DMO scenario. and FSRU East Java (3 MTPA). / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 63 2018. additional 570 MMSCFD of natural gas compared to the supply in required for LNG regasification coming from LNG Masela (3. reduction of up to 64. and accumulation of 160 CNG fueling stations in such as gas pipelines and LNG systems. government. In the HGG-no export sce- plan to develop this field.to 3-fold are an 11. Infrastructure and investment Based on the analysis in the previous section. in order to in- with no export and optimistic reserves (OpRes). the gas production and gas consumer centers.2 and 105.5 billion. the requirement for new additional infrastructure is mostly will begin in 2018 and amount to 761 MMSCFD in 2025. CO2 emissions reduction applied to CBM operations is unsuitable for the characteristics of CBM development. 12: a much as 800 MMSCFD in 2020 and reaching maximum throughput pipeline at US$ 2. requires large-scale infrastructure starting in 2015. main obstacles faced in the development of Indonesian CBM are policy and bureaucracy.6. 11. including FSRU Lampung (2 MTPA). the 2025.3 MTPA LNG plant consisting of one baseload train at LNG higher than gas demand in 2013. In 2025. cess and exploration from various authorities at different levels of In general. 2015) to receive the full LNG supply from Masela in 2018. but the investment for LNG RT must be provided earlier (in cost of CO2-methane separation and CO2 storage in an aquifer. this development has been constrained by the high DMO. and sulfur. In the HGG-DMO scenario. quirements are three trains at Masela FLNG (7. producing as development in the BAU-DMO scenario is shown in Fig.5 billion. the re. in 2015. In the HGG-DMO scenario. FSRU Cilacap (1. gas infrastructure development: the western part of Indonesia. and a 41 MTPA LNG receiving ter. Indonesia still must rely on im. This huge additional gas demand Tangguh (Train 3) and three trains at Masela FLNG (one train in will be followed by additional gas infrastructure which connects 2015 and two trains in 2016).9 million tons of CO2 emissions reaucracy. This gas block has approximately 46 TCF the investments required are a pipeline at US$ 2. up to The gas infrastructure requirements of the BAU-DMO scenario 7205e11. 12 reveals the amount of CO2 emitted. associated delays in getting permits related to land ac. In HGG the same as in the HGG-DMO scenario. and procurement to prioritize local content despite having no domestic rigs designed specifically for CBM operations. LNG plant of reserves of natural gas containing more than 70% CO2 and rich in at US$ 13 billion. domestic supply will receive an Receiving Terminals beyond those in the HGG-DMO scenario. respectively. 2014a). Purwanto et al. the projected domestic gas demand would increase significantly. In this scenario. 4. and HGG-No Export because the scenario requires the least LNG duction capability. which can be reduced flexibility in their exploration activities than those of conventional by substitution of petroleum fuels with natural gas.5. For western Indonesia. A potential additional supply of Masela FLNG nario. The investment required for infrastructure potential reserves must be ready to be exploited. Barriers and challenges for gas development 3.W. and LNG of 2500 MMSCFD in 2022.5 billion. the industrial sector reduces CO2 emissions the most.

there are business opportunities for the application (MEMR. To overcome these obstacles. with 50 TCF of recoverable reserves. the separation and sequestration. the business integrated. especially for CO2 After reform energy subsidies announced in early 2015. produces natural gas the existing private and foreign investment in Indonesia. The major barriers hin. 2011).W. In the com. the reform has not been effective tential gas demand. providing with a high CO2 and sulfur content. needs to address the acceleration of new of gas infrastructure Indonesia will become a net importer of gas in the near future. in combination technologies (a subsea production system and a floating LNG) that with current low oil prices. the government should finalize this new law soon opment and require specific gas technology.. 2015). with low po. and unbundling scheme. gas industry development in the country. There are some ses of domestic gas users. has the potential to discourage (IGU. such as small LNG (Hutagalung et al. declining gas . The East Natuna gas and assure smooth transitional provisions and guaranties to respect field. a greater role for government to Furthermore. especially public-private partnership scheme. and some traders acting as brokers without building infrastructure mercial sector. It appears that since deregulation of the down- of gas-based combined cooling-heating power technology to save stream gas market was introduced in 2001 through the open access energy. this field would require a large investment. The Masela block of 15 TCF is located government has opportunities to use the savings from subsidy in the remote Arafura Sea. Most of the pipeline gas network is not and CNG marine. streamline gas infrastructure planning. LNG plants have remoteness indexes greater than 4 due to which creates a new entity called BUMN-K for upstream businesses geographical isolation and a lack of well-developed infrastructure and BUP for downstream activities. Large-scale infrastructure development.00 Electricity Industry FerƟlizer City Gas Million Ton CO2 80.00 0. Thus. 2011. 2015b). 5. 12. while potential untapped gas business exists in the use of The development of pipeline network infrastructure is almost gas for the transport sector and the commercial sector. the industry. especially in stagnant. involvement to reduce infrastructure investment risk using a grid industries. far (Thurber and Chang. This field will develop using specific expenditures for gas infrastructure spending and. The government should address the dering gas development are as follows. The government should attract more investment in upstream gas exploration and exploi.64 W. development in the country. Despite high potential for additional gas demand. and industry land country such as Indonesia are another barrier to natural gas readiness. A complex development. it and carefully manage an effective policy to avoid productivity los- needs to accelerate new gas field development. mainly due to a mismatch between gas allocation for large cities. 2014a).00 40.00 BAU HGG BAU HGG BAU HGG BAU HGG BAU HGG BAU HGG BAU HGG 2013 2015 2017 2019 2021 2023 2025 Fig. domestic gas allocations. requires a small LNG and CNG system approach (IGU. from demand centers such as Java and Sumatra.00 100. disparity between international gas prices and domestic gas prices To delay Indonesia becoming a net gas importer country.00 20. Those fields present some substantial risk for devel. Indonesia and industrial development. 2011). All of Indonesia's The nationalistic spirit of the new draft of the oil and gas law. Development of Natural Gas vehicles (NGV) has great domestic usage and infrastructure planning. gas market but also by the international gas market (IEA. Meanwhile. support development of integrated gas infrastructure. In the eastern part of Indonesia. and the gas users. Other small gas fields are located at increase domestic natural gas usage or to cut the country's reliance remote islands with small gas markets. The commercial application of legal clarity and certainty for the industry. the logistics for transporting natural gas over an is. 2015a). 2014). Conclusion tation activities by simplifying and improving bureaucratic per- formance for permitting and approvals and addressing taxation Indonesia faces the challenge of a rapid increase in domestic gas issues (IPA. the government should undertake a serious effort to push natural 2013). These changes should be anticipated by the government. the government gains momentum to require a large investment. investors. these will determine the success of national gas industry utilization which could cause high transportation costs. consumption driven by rising economic growth. requires specific gas logistics. The government should also to meet fuel demand for a smelter. several barriers still hamper and the gas business in Indonesia will follow the fast change in natural gas development and the wide utilization of natural gas to domestic gas demand that is influenced not only by the domestic fuel a sustainable national economy. Potential for CO2 emissions reduction (PGN. such as by establishing hybrid markets barriers to developing gas fields located in remote locations. which will ultimately lead to a choice of clean energy gas supply contracting process can also hinder the pace at which sources with cheaper prices for the public.00 60. Purwanto et al. so the government should establish an integrated gas potential associated with the development of small-scale gas pipeline network earlier and there should be more government infrastructure is to meet fuel demand for small power plants or off. / Journal of Natural Gas Science and Engineering 29 (2016) 55e65 120. is also a possibility. however. land acquisition issues potential to substitute for petroleum fuel vehicles. gas flows from the field to the market. monetizing those fields on oil by implementing an effective domestic gas pricing system. sectors. the eastern part of Indonesia. systematic regulatory guidelines.

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