SECURITY OF ENERGY SUPPLY IN INDONESIA

Author:
OETOMO TRI WINARNO
Institut Teknologi Bandung
tomo@cbn.net.id

Abstract

During along time, Indonesia has known as a rich energy resources country. But, the energy
utilization pattern in the last few decades has shown a tendency of worsening the national
energy supply security. For some energy forms, that are crude oil and oil fuel, import
dependency is increasing.

Crude oil production decreased. Scarcity of oil fuel supply occurred in some regions, as well as
LPG supply. Electricity crisis happened in most part of the country, even in Java–Madura–Bali
electricity interconnection system. Lack of natural gas supply occurred in East Jawa and Aceh,
also some disturbances of coal supply for Suralaya Coal Power Plant. These conditions should
be solved immediately in order to make development process run well

The level of energy supply security in Indonesia (with a business as usual scenario) for each
energy form is as follows: (i) security of oil supply is the worst, import dependency for crude oil,
oil fuel, dan refinery product is 34%, 24%, 12% respectively; net oil import will occurred in 2010;
(ii) LPG security supply is the second, net LPG import will occurred in 2020; (iii) natural gas
security supply is the third, net natural gas import will occurred in 2040; and (iv) security of coal
supply is the best, coal supply will secured until 2075.

For securing the domestic energy supply: (i) oil fuel consumption should be reduced; (ii)
utilization of natural gas and coal should be encouraged; (iii) clean coal technology and its
implementation should be prepared; and (iv) encourage renewable energy utilization and its
research and development, for preparing energy supply after fossil energy.

Presented in “National Energy Congress 2004”, World Energy Council – Indonesian National Committee,
Jakarta 23 –24 November 2004.

1
1. Introduction

Energy is one of important factors for development. Energy availability will encourage economic
growth, and the larger economic activities need larger energy supply. Therefore, security of
energy supply is needed for sustaining the national development.

During New Order administration (1968 – 1998), energy availability was made as a competitive
advantage to boost industrial growth in Indonesia, as well as a means for welfare distribution.
Energy policy at that time was stipulated that energy price should be affordable and encourage
productive activities. Energy price subsidy policy that was carried out at that time, especially for
oil fuel, resulted a hard dependency on oil fuel. On the other hand, the oil fuel subsidy
hampered the development of its alternative energy.

Security of energy supply in Indonesia has never become a problem before economic crisis in
1997. With a strong financial capability of government at that time, people could enjoy an
affordable energy price and its availability in the market. But after the crisis, the government
financial capability weakened, and the people must realize that securing the energy supply is
costly.

Crude oil production decreased. Scarcity of oil fuel supply occurred in some regions, as well as
LPG supply. Electricity crisis happened in most part of the country, even in Java–Madura–Bali
electricity interconnection system. Lack of natural gas supply occurred in East Jawa and Aceh,
also some disturbances of coal supply for Suralaya Coal Power Plant. These conditions should
be solved immediately in order to make development process run well

2. Energy Security System in the World

Since the end of World War II, energy supply scarcity had occurred for several times, especially
crude oil. The world oil supply was always disturbed when there was a crisis in the Middle East.
A big disturbance took a place in 1974, where the Arabic countries forced an oil embargo as a
protest to the United States that supported Israel in the Arab–Israel war. As a result, world oil
supply decreased up to 2.4 million barrels per day (bpd) and oil price had increased more than
300% in a few months. This oil crisis disturbed the stability of world economy, especially in
industrial countries.

For overcoming the oil crisis, industrial countries established an International Energy Agency
(IEA) in 1974. The background of IEA establishment was a need of energy cooperation for
securing the oil supply. IEA consists of 26 countries, that are: Australia, Austria, Belgium,
Canada, Czech, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan,
Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey, United Kingdom, and United States.

IEA obliges its members to have an emergency oil reserve equivalent to at least 90 days of net
imports of crude oil in each country that is called as stockholding obligation. Stocks to meet IEA
requirements are held within three broad types of oil stockholding systems: company stocks,
government stocks, and agency stocks. Company stocks consist of compulsory and
commercial stocks. Government stocks is financed with government budget and used for
emergency purposes. Agency stocks are maintained for emergency purposes by both public
and private bodies. They are usually held under a co-operative cost-sharing arrangement.

Lessons learned from the 1974 oil crisis is that for creating the security of energy supply, one
country should:
- not be over dependent on one form of primary energy, e.g. over dependence on oil, gas,
coal, uranium, or hydro.
- not be over dependent on one source of energy form, e.g. over dependence on oil from
Middle East, coal from Australia, or LNG from Indonesia.

2
- encourage the development of domestic energy resources (fossils energy and
renewables), for avoiding energy import dependency
- increase international cooperation for overcoming energy problem
- implement national and regional strategic energy reserve

3. Review on Energy in Indonesia

3.1 Energy Consumption

Final energy consumption in the past three decades was very dominated by oil fuel. The oil fuel
consumption share in the 1970 energy mix was 95 % of the total final energy consumption.
Gradually the oil fuel share decreased, and became 69% of the total energy consumption in
2002. The high of oil fuel share is resulted by oil fuel subsidy policy, as well as the lack of
availability of other energy form in the market. Electrification ratio in the current days is still 52%,
and the availability of LPG (liquefied petroleum gas), natural gas, and coal (including in the form
of coal briquette) are still limited.

500

450 LPG
Electricity
400
Coal
350 Nat. Gas
Million BOE

300 Oil Fuel

250

200

150

100

50

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Source: DG of Electricity and Energy Utilization, 2003

Figure I. Final energy consumption in 1987 - 2002

In Figure I, it is shown a picture of final energy use pattern in 1987 – 2002. It can be seen that
the impact of economic crisis was significant enough to energy consumption. Before the crisis,
an average growth of final energy consumption was 7.3% per year. In 1998, there was no
growth on energy consumption. After 1998, final energy consumption has grown 6 % per year
on average. The oil fuel price subsidy removal policy that launched in 2000 has shown a result
for shifting fuel oil consumption to the other energy. It can be seen that oil fuel consumption has
been relatively flat after 2000. It seem that the subsidy removal policy will tend to decrease the
oil fuel share in the final energy mix.

Primary energy mix consumption is shown in Figure II. Crude oil share in the energy mix in 1987
– 2002 was 65 % - 54 %. The share of coal and natural gas has been increasing in that time. In
2002, the share of natural gas and coal were 23 % and 17 % respectively. Utilization of natural
gas and coal in power generation has been significant in decreasing oil share in the primary
energy mix. The large consumption of coal for power generation was started in the end of
1980’s. In 2002, coal power plant was 35 % of total power generation. In the same time, natural
gas power plant was 30 % of total power generation.

3
 800

700 Geotherm al
Hydro
600 Coal
Natural Gas
500 Oil
Million BOE

400

300

200

100

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002
Source: DG of Electricity and Energy Utilization, 2003

Figure II. Primary energy consumption in 1987 – 2002

3.2 Energy Resources

Indonesia is blessing with a various energy resources, in the form of fossil energy as well as
renewables energy. Oil, natural gas, and coal resources that belong to Indonesia were the
largest in South East Asia region. Eventhough, it is only a little part of total world resources. In
Table I, it is shown the resource, reserve, production, and domestic utilization of fossils energy
per year in Indonesia.

Table I. Resource, Reserve, Production, and Utilization of Fossil Energy in 2002

Type of Unit Resource Proven Production/ Domestic
Energy Reserve year Use/year
Crude oil Billion BOE 66.8 4.7 0.45 0.41
Natural gas TCF 266.7 90.3 3.04 1.13
Billion BOE 48.0 16.3 0.55 0.20
Coal Billion ton 51.2 5.0 0.10 0.03
Billion BOE 204.9 19.9 0.41 0.12
Source: DG Oil and Gas, Dir. Of Mineral and Coal, 2003

Oil resource in Indonesia is large enough, where the proven reserve is 4.7 billion barrels. Crude
oil is the largest utilized fossil energy in Indonesia. While, its production capacity keeps on
decreasing. Crude oil production is around 450 million barrels per year now. The domestic
consumption of crude oil (for refinery and net import of crude oil) is around 400 million barrels
per year, and still tend to increase in the next years.

Natural gas reserve availability is larger than oil, and still increasing with new reserves
discoveries. Natural gas production capacity is around 3 TCF (trillion cubic feet) per year or
equivalent with 550 million BOE (barrel of oil equivalent) per year. Domestic utilization of natural
gas is relatively undeveloped yet, especially for energy. Natural gas consumption is around 200
million BOE per year, which is 35% among that for industrial feedstock. Large part of

4
Indonesia’s natural gas production is allocated for export, in the form of LNG (liquefied natural
gas) as well as piped gas.

Coal resource is relatively larger than natural gas and oil. Even though, most of that is
categorized as low rank coal. Coal production capacity in 2002 is 103 million ton per year or 410
million BOE per year. While the domestic consumption of coal is relatively low, that is around
120 million BOE per year. Coal production is still increasing, with average growth of 10% per
year. With the competitiveness of coal price relative to oil fuel, the domestic coal demand will
increase.

Renewables energy potency in Indonesia is large enough and in the various form, as shown in
Table II. Indonesia’s geothermal potency is the largest in the world, that is 20 MW (mega watt).
But the utilization is only 1.6% of the total potency. Economic crisis and the renegotiation of
power purchasing contract have impacted to the postponing of several geothermal power plant
projects. With the new policy in oil and gas and electricity, it can encourage the development of
geothermal utilization.

Utilization of hydro potency is large enough, that produce around 10 GWh (giga watt hour) per
year. But, it is only 4.3% of its total potency. Currently, hydro utilization is still concentrated in
Jawa Island. While, the larger potency of hydro is located outside of Jawa Island.

Other renewable energy - that are: solar (not included for direct drying), wind, biomass, biogas,
peat, and tidal - their utilization are still low. Utilization of solar cell has been implemented in
several remote villages, as an effort for even distribution of electricity. Peat utilization has
already developed as a pulp industry fuel in Riau Province.

Table II. Potency and Installed Capacity of Renewable Energy

Type of Energy Potency Installed Percentage of
Capacity Utilization
Thousand BOE (MW) (MW) (%)
Geothermal 105.6*10 6 19,658 311.50 1.58
Hydro 395.8*106 75,000 3,245 4.33
Solar 2,155.6*109 1,203.8*106 0.88 7.31*10-8
Wind 16.63*106 9,286.6 0.23 0.0025
Biomass 267.6*106 49,807.4 177.85 0.36
Biogas 127.47 684.8 0.06 0.0088
Peat 16.88*106 - - -
Tidal 1,289.4*106 240*103 - -
Total 2,156.04*109 1204.15*106 3,735.52 1.73*10-9
Source: DG of Electricity and Energy Utilization, 2003

3.3 Energy Balance

In the Table III, it is shown Indonesia energy balance for 2002. Net primary energy supply was
841 million BOE (including feedstock use and losses). Total domestic production of primary
energy was 1,474 million BOE. Energy export was 861 million BOE, consists of: coal, natural
gas, LNG, crude oil, oil product (fuel and non fuel), and LPG. Energy import was 228 million
BOE that were crude oil and oil fuel.

In relation with security of energy supply, the crucial thing from that energy balance was the
crude oil and oil fuel supply. Other than these two energy forms, energy supply in Indonesia in
general is relatively safe. Dependence of crude oil and oil fuel import should be paid attention,
because of Indonesia energy consumption pattern that heavily dominated by crude oil and oil
fuel. In the next section, it is discussed in more detailed the security of energy supply for each
energy form.

5
 Table III. Indonesia Energy Balance of 2002
000 BOE
Oil Product - Oil Product -
Coal Natural Gas LNG Crude Oil LPG Hydro Geothermal Electricity Total
Fuel Non Fuel

Indigenous Supply 124,668 531,482 (244,309) 362,498 100,373 (53,281) (10,824) 26,178 9,179 - 840,986
Production 441,897 546,321 - 455,625 - - - 26,178 9,179 - 1,474,221
Import - - - 124,148 103,791 - - - - - 227,939
Export (317,229) (14,838) (244,309) (217,274) (3,418) (53,281) (10,824) - - - (861,173)
Transformation (85,611) (345,376) 242,977 (357,971) 232,635 55,651 17,900 (26,178) (9,179) 66,337 (203,836)
Refinery - (5,545) - (357,971) 275,518 55,651 6,941 - - - (25,406)
LPG Plant - (7,601) - - - - 3,606 - - - (3,994)
LNG Plant - (297,580) 242,977 - - - 7,353 - - - (47,250)
Power Generation (85,611) (34,650) - - (42,883) - - (26,178) (9,179) 66,337 (127,185)
- PLN (60,105) (34,650) - - (42,883) - - (23,282) (4,690) 54,737 (108,328)
- IPP (25,506) - - - - - - (2,897) (4,489) 11,600 (18,857)
Energy Use/Losses - (97,393) - - - - - - - (12,870) (110,264)
Statistical Discrepancy (453) 9,682 (1,332) 4,527 8,162 2,370 (1,669) - - 81 21,369
Final Consumption 39,510 79,032 - - 324,846 - 8,745 - - 53,385 505,518
Industry 39,371 41,525 - - 82,836 - 2,231 - - 27,792 193,756
Transportation - 114 - - 167,393 - - - - - 174,021
Household 138 77 - - 74,617 - 6,514 - - 25,593 100,425
Feedstock - 37,316 - - - - - - - - 37,316
Source: DG of Electricity and Energy Utilization and Center for Energy Information, with some adjustment

6
4. Security of Oil Supply in Indonesia

Indonesia is known as an oil exporter country. Oil industry in Indonesia has developed for more
than a hundreds years. Oil and gas sector has given a large contribution for national
development, especially in the beginning of New Order administration. But it will change in the
future. Some people do not realize that Indonesia’s oil reserve is depleting and its production
capacity decreasing.

On the other side, energy consumption pattern is heavily depend on oil and will be difficult to be
changed. Oil consumption will keep on growing in the next years. Oil export will decrease and in
the opposite its import will increase. In a few years, Indonesia will become net oil importer
country.

In the Table IV, it is shown the Indonesia’s oil balance. Oil production and export tend to
decrease, with average decreasing rate in 1998–2002 is 4% and 5% per year respectively.
While, oil import increased faster, with average increasing growth of 18% per year. It means
that net oil export will decrease with decreasing rate of 18 % per year.

Table IV. Crude oil balance

Million barrels
1998 1999 2000 2001 2002
Production 534.89 494.64 517.55 489.31 455.62
Import 66.78 84.69 79.98 112.88 124.15
Export 280.37 285.40 220.13 241.61 217.27
Net Export 213.59 200.71 140.15 128.73 93.12
Domestic Supply 321.30 293.93 377.40 360.58 362.50
Dependency 21% 29% 21% 31% 34%
Source: DG Oil and Gas and calculation

Oil import is needed for domestic refinery feedstock, which is most of that come from Middle
East. Installed capacity of domestic refinery in the last few years has not increased, that is 1.06
million barrel per day. Crude intake for domestic refinery increase 4% per year on average,
lower than oil product consumption rate. Meanwhile, domestic refinery dependence on oil import
keep on increasing that is shown by increasing of crude oil import in oil supply for domestic
refinery. In 2002, crude oil import was a thirdth of total crude intake for domestic refinery, or 124
million barrel per year.

In the Figure IV, it is shown a picture of crude oil production and utilization in Indonesia and its
projection to the future. Since 1994, crude oil production in Indonesia has decreased, as well as
its amount of reserve. Even its unrecoverable reserve is still large enough; the new oil reserve
discovery is lower than its production rate.

Crude intake for domestic refinery consists of domestic supply and oil import. As mentioned
above, the refinery capacity has remained constant since 1996. In line with the decreasing of
crude oil production, crude oil supply for domestic refinery is decreasing. It means that crude oil
and oil fuel import is increasing.

In that figure, it is shown a scenario of increasing domestic refinery capacity to meet the
domestic oil fuel demand and priority of crude oil supply for domestic refinery. It is projected that
in 2016, all of crude oil production is served for domestic refinery demand, even it is needed
more crude oil import in that time. Based on this projection, if crude oil production can be
maintained in the current production level, Indonesia will become a net oil importer in 2010. If
crude oil production keeps on decreasing, time for being net oil importer will happen sooner.

7
 800

700

600

Million BOE/year
500

400

300
Export
200 Import
Domestic Supply
100 Production

0
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020
Figure IV. Projection of crude oil production and utilization

According to the Law No. 22/2001 regarding Oil and Gas (Oil and Gas Law) article 8 paragraph
(1) and (2), it is stipulated that government have a responsibility to provide strategic petroleum
reserve and assuring the availability of oil fuel. The detailed of the paragraph is as follows.

(1) Government gives priority to the utilization of Natural Gas for domestic needs and has a
duty to provide the strategic reserve of Oil to support the supply of the domestic Oil Fuel
that shall be further regulated by the Government Regulation.

(2) The Government shall be obligated to guarantee the availability and the continuous
distribution of Oil Fuel, which is a vital commodity and affects the livelihood of many people
throughout the territory of the Unitary State of the Republic of Indonesia.

Strategic petroleum reserve is a new discourse in Indonesia. Even Indonesia is still as an oil
exporter country and a member of OPEC, Indonesia should start to prepare herself to be a net
oil importer country in the next few years.

Good planning and large of fund are needed for building a strategic petroleum reserve. It is
estimated Rp. 5.6 trillion (USD 663 million) needed to build 20.4 million barrels strategic
petroleum reserve or 60 days of current Indonesia’s oil import. It is included infrastructure cost
and crude oil cost. (Based on assumption of USD 7.5/barrel for infrastructure cost and crude oil
price of USD 25/barrel).

In line with that, government should prepare the regulations and policies to secure oil supply. As
mentioned in Oil and Gas Law, government should stipulate a Government Regulation to
manage this matter. The Government Regulation should cover: the amount of strategic
petroleum reserve, management of the reserve (whether by government, industry, or agency),
fund arrangement for the reserve, and withdrawal arrangement of the reserve.

In the downstream sector, the management of downstream oil business according to Oil and
Gas Law is on the Oil Regulatory Body, included the implementation of strategic oil fuel reserve,
that in Oil and Gas Law is called as National Oil Fuel Reserve. One of Regulatory Body
responsibility according to Oil and Gas Law article 46 paragraph 3 is to manage and stipulate
availability of the oil fuel and the National Oil Fuel Reserve.

8
Currently, domestic oil fuel supply is still carried out by Pertamina (state own oil company).
Pertamina is still a single player in downstream oil sector that have integrated business from
refinery to the oil fuel selling. Pertamina has already had an established transportation and
distributin network, as well as supply system and operation procedure. For securing the oil fuel
supply, Pertamina has applied an oil fuel operation reserve of 21 days of average selling. The
oil operation reserve is located in storages that distributed in Pertamina’s supply point.

In the Table V, it is shown domestic oil fuel consumption by type. Oil fuel consumption kept on
growing. But it can be seen that after 2000, the growth rate is slower. Automotive Diesel Oil
(ADO) is the most consumed fuel, which is 40 % of total oil fuel consumption. It is followed by
gasoline and kerosene, which the consumption is 23 % and 20 % of the total. With the total oil
consumption volume of 57.2 billion liters in 2002, it means that the oil fuel operational reserve
that should be provided is 3.3 million liters.

Table V. Oil fuel consumption by type

Million liters
1998 1999 2000 2001 2002
Gasoline 10,980 11,515 12,429 13,067 13,732
Kerosene 10,144 11,927 12,458 12,421 11,678
ADO 19,679 17,870 22,080 23,357 24,213
IDO 1,272 1,309 1,472 1,434 1,360
FO 5,231 5,456 6,076 6,159 6,260
Total 47,306 48,077 54,515 56,438 57,244
Source: DG Oil and Gas and calculation

In the Table VI and VII, it is shown the dependency level to imported oil fuel. It can be seen that
the dependency level is high enough. The increasing of imported oil fuel dependency is caused
by domestic refinery capacity that is remained constant in a few years later. Percentage of
imported ADO is the highest compared to the other oil fuel. In 2002, it was around 40 % of
domestic ADO consumption supplied from import. For other oil fuel, the import percentage is
around 20%, except Industrial Diesel Oil (IDO) that the consumption level is low.

Table VI. Oil fuel import by type

Million liters
1998 1999 2000 2001 2002
Gasoline 581 1,588 1,971 2,395 3,134
Kerosene 1,328 2,789 2,966 2,718 2,719
ADO 5,048 5,770 7,194 7,879 9,637
IDO 160 365 304 - -
FO 1,474 216 2,021 729 1,232
Total 8,010 9,140 12,486 11,327 13,588
Source: DG Oil and Gas and calculation

Tabel VII. Dependency to oil fuel import

Million liters
1998 1999 2000 2001 2002
Gasoline 5.3% 13.8% 15.9% 18.3% 22.8%
Kerosene 13.1% 23.4% 23.8% 21.9% 23.3%
ADO 25.7% 32.3% 32.6% 33.7% 39.8%
IDO 12.6% 27.9% 20.7% 0.0% 0.0%
FO 28.2% 4.0% 33.3% 11.8% 19.7%
Total 16.9% 19.0% 22.9% 20.1% 23.7%
Source: DG Oil and Gas and calculation

9
In the Table VIII, it is shown the Indonesia’s oil product balance. It is included oil fuel and non-oil
fuel (lubricant, naphta, LPG, etc.). Due to the constant refinery capacity in 1998 – 2002, refinery
production and exported oil product are relatively constant. On the other side, domestic oil
product consumption (especially for oil fuel) has increased. It has resulted increasing of oil
product import and the level of import dependence.

Table VIII. Oil product balance

Million barrels
1998 1999 2000 2001 2002
Production 339.66 347.66 368.78 375.67 365.86
Import 54.05 79.90 75.21 89.62 106.93
Export 58.90 56.50 67.08 55.12 55.49
Net Import (4.85) 23.40 8.13 34.50 51.44
Domestic Supply 334.81 371.06 376.91 410.17 417.30
Dependency -1.4% 6.3% 2.2% 8.4% 12.3%
Source: DG Oil and Gas and calculation

It is expected that after the liberalization of downstream oil sector and the oil fuel price subsidy
removal policy implemented, the downstream oil business will be more interesting. Some of the
advantage of this business are a certain and large market of oil fuel and will keep on increase
(because fuel is a basic need) and the availability of oil reserve (the feedstock for refinery is
close). Therefore, it is expected that in the near future, the downstream oil business will be
developed, especially for oil refinery business.

5. Security of Non Oil Supply in Indonesia

5.1 Natural Gas

Indonesia is still as a largest LNG exporter in the world. Currently, Indonesia also exports
natural gas via pipe to Singapore and Malaysia. To increase the natural gas utilization for
domestic, Government of Indonesia has launched a policy namely the Incentive Gas Domestic.
To support this policy, it will be built an integrated natural gas transmission infrastructure.

New natural gas reserve discovery rate in Indonesia is still high enough. Even, natural gas
production from some field started to decline, such as from Arun gas field. But, there were many
new discoveries in the other field, such as Tangguh gas field in Papua. In total, natural gas
reserve and its production capacity is still increased.

Natural gas production and utilization in Indonesia and its projection to the future is shown in
Figure V. Natural gas utilization is categorized into: own use and losses (flared gas), energy
consumption, non energy consumption (feedstocks for fertilizer and petrochemical industry),
and export (in the form of LNG and gas pipe). Flared gas is estimated to decrease, with the
increasing of domestic utilization of natural gas. Utilization of natural gas for energy is estimated
to increase, in line with increasing of domestic natural gas network infrastructure. Utilization of
natural gas for feedstock is estimated relatively constant in amount. Natural gas for export
currently is 60% of total natural gas produced. It estimated that in 2020, natural gas export
would be still large enough.

10
 700

600

500

Million BOE/year
Export
400 Feedstock
Energy Cons.
300 Ow n use&losses
Production
200

100

0
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020
Figure V. Projection of natural gas utilization

Based on that projection above, sufficiency ratio of natural gas still good enough until 2020. If
natural gas production is assumed can be maintained in the level of 600 million BOE per year
(3.33 TCF per year) and the domestic natural gas consumption growth is 5% per year, it is
estimated that domestic natural gas demand will be same as its production in 2040.

In a few years later, it has occurred some natural gas disruption case, such as accured in East
Jawa (lack of natural gas for power generation and industry) and in Aceh (for fertilizer industry
and LNG plant). It is caused by the limited of natural gas infrastructure, where natural gas user
only supplied by one source or one field. Therefore, it should be built an integrated natural gas
transmission and distribution. This infrastructure will increase the reliability of natural gas
supply, ecourage natural gas utilization, and encourage the development of marginal gas field
around the transmission pipe.

5.2 Coal

Coal production still keeps on growing. Resource and reserve of coal in Indonesia is relatively
large. Currently, many coal-mining companies are still in exploration and exploitation stage.
Indonesia coal reserve, that most of it is categorized as low rank coal, is still under utilized.
Domestic coal consumption is relatively low, compared to its production. Domestic coal
consumption ratio to its production is still less than 30%.

In the Figure VI, it is shown the projection of coal production and utilization up to 2020. Coal
production is estimated keep on growing until its maximum production capacity, around 800
million BOE per year (200 million tons per year). Domestic coal demand is estimated increasing
with relatively high growth. In the opposite of that, the coal export allocation will decrease.

From that figure, it can be seen that sufficiency ratio of domestic coal supply is high. Scarcity of
domestic coal supply, especially for Suralaya Coal Power Plant, is caused by its supply
mechanism that heavily depends on one source that is from PTBA coal mining in South
Sumatera. Beside that, coal price mechanism should be more competitive, so the coal producer
interested selling coal for domestic use.

11
 900
Export
800
Domestic Supply
700
Production
600

Million BOE/year 500

400

300

200

100

0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Figure VI. Projection of coal utilization

5.3 LPG

Domestic utilization of LPG has increased with relatively high growth. In ten years later, LPG
consumption growth was 10 % per year on average. Meanwhile, LPG production tends to
decrease. Decreasing of LPG production is caused by depletion of Arun gas field production, as
well as other gas fields. In Figure VII, it is shown LPG utilization allocation during 1990 – 2002.

3,500

3,000

2,500
Million Ton

2,000
Export
Domestic Supply
1,500

1,000

500

-
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Source: DG Oil and Gas, 2003

Figure VII. LPG production and utilization

12
LPG is produced from oil refinery and gas plant. The types of LPG are butane, propane, and
mixed LPG (mixed of butane and propane). Butane and propane are produced in gas plant, and
mixed LPG is produced from refinery. Butane and propane are generally allocated for export,
whereas mixed LPG is used for fulfilling domestic supply. Total installed capacity of LPG
production is 3.87 million ton per year, that consist of 3.39 million ton/year of installed capacity
of gas plant and 0.84 million ton per year of installed capacity of LPG production from refinery.

Sufficiency ratio of domestic LPG supply is still good enough. There is still large of LPG surplus.
Scarcity of LPG supply that happened in the recent days in some regions is caused by domestic
LPG price that is not attractive. This scarcity can be overcome if the domestic LPG price is
competitive enough. It is needed also better LPG distribution mechanism and operational stock
arrangement that should be provided by storage installation and selling agent of LPG.

If the LPG production will not increase, domestic LPG supply will not meet its national demand
in the next few years. With assumption of LPG demand growth is 4 % per year (as its growth
after economic crisis) and LPG production is remained same, so Indonesia will be a net
importer of LPG in 2020.

5.4 Electricity

In the few years later, electricity crisis has been a serious problem in Indonesia’s energy sector.
There was a bad electricity crisis occurred in some regions outside of Jawa Island, that covered
almost all of Sumatera and Kalimantan Island. Even, the realibility electricity supply in Jawa–
Madura–Bali electricity interconection system has been worsened since 2002.

After the Law No 20/2002 regarding Electricity launched in November 2002, it is expected that
the reliability of electricity supply can be increased. The Electricity Law regulates the
liberalization in electricity sector. Where the electricity business is directed to market
mechanism, i.e. multi buyer multi seller system. And also for electricity price that is gradually
directed to market price. With that policy, it is expected that investment in electricity sector will
increase and the people can enjoy a good electricity services.

Ensuring the reliability of electricity supply is regulated in the Electricity Law. In article 52, it is
stipulated that ensuring electricity reliability task is under responsibility of the Electricity Market
Supervisory Agency (BAPEPTAL, Badan Pengawas Pasar Tenaga Listrik), and operated by An
Electricity System Operator. As mentioned in article 25, the task of Electricity System Operator
include:
- maintaining the level of safety, quality, and reliability of the electricity system, and
- ensuring electricity supply.

There are three factors should be considered to ensure the reliability of electricity supply. That
are: the sufficiency of power capacity reserve margin, the availability of primary energy supply
for power generation, and the availability of electricity transmission system.

To ensure the reliability of electricity supply, the power capacity should meet the criteria of
reserve margin. Reserve margin of power capacity is needed for reserve if the main power
generation is shut down, whether for routine maintenance (scheduled outage) or because of
engine damage (forced outage).

Availability of primary energy supply for power generation is one of main consideration in
selecting power generation type to be built. The existing large power generation is mostly
located close to the load center, i.e. in Jawa Island. The large coal power generation in Jawa is
supplied by Sumatera and Kalimantan coal. Whereas, the natural gas supply for power
generation is from natural gas field in Jawa offshore.

The reliability of electricity supply is also determined by electricity transmission infrastructure,

that consists of transmission line, distribution line, and transformator. Electricity transmission

13
development at the moment is hampered by the difficulties for providing transmission right of
way. A problem such like that should be overcome to increase the reliability of electricity supply,
and the electricity crisis can be solved soon.

5.5 Renewable Energy

For increasing the security of local energy supply, the local renewable energy potency should
be developed. Geographical condition of Indonesia that consist of thousands of island with
extensive range of territory cause a problem in energy supply distribution, especially for
conventional energy such as oil fuel, LPG, natural gas, and coal. Some of those islands do not
produce this type of energy and depend on the other region for fulfilling its energy demand.
Therefore, local energy potency should be explored and utilized. For the regions that do not
have conventional energy industry, strategic reserve for renewable energy should be
considered.

6. Concluding Remark

During along time, Indonesia has known as a rich energy resources country. But, the energy
utilization pattern in the last few decades has shown a tendency of worsening the national
energy supply security. For some energy forms, that are crude oil and oil fuel, import
dependency is increasing.

The level of energy supply security in Indonesia (with a business as usual scenario) for each
energy form is as follows:
• security of oil supply is the worst, import dependency for crude oil, oil fuel, dan refinery
product is 34%, 24%, 12% respectively; net oil import will occurred in 2010;
• LPG security supply is the second, net LPG import will occurred in 2020;
• natural gas security supply is the third, net natural gas import will occurred in 2040;
• security of coal supply is the best, coal supply will secured until 2075.

For securing the domestic energy supply:

• oil fuel consumption should be reduced;
• utilization of natural gas and coal should be encouraged;
• clean coal technology and its implementation should be prepared;
• encourage renewable energy utilization and its research and development, for
preparing energy supply after fossil energy.

In relation with that, the energy strategies that is stipulated in General Policy for Energy Sector
(Kebijaksanaan Umum Bidang Energi) should be implemented seriuosly and comprehensively.
The strategies are:
• energy diversification, to substitute oil consumption with other energy form;
• energy conservation, to conserve energy use in the demand and supply side;
• energy intensification, to intensify the finding of new source of energy (fossils and
renewables).

To implement those strategies, it is needed a comprehensive and coordinated energy planning:

• inter-sectorally (oil and gas sector, coal sector, electricity sector, and renewable energy
sector) and;
• inter-ministry (Ministry of Energy and Mineral Resources, Ministry of Finance, Ministry
of Industry and Trade, Ministry of Transportation and Communication, and other related
Ministry).
After that, the more important is the implementation of that planning, which should be
consequently executed. All of energy resources and potency in Indonesia should be utilized
optimally as much as possible for the people benefit and be able to secure the energy supply
sustainability.

14
Energy price problem, as a root of energy problem in Indonesia, should be solved wisely. The
scarcity of some energy (oil fuel, LPG, natural gas, coal) is caused by the uncompetitive
domestic price compared to its international price. Oil fuel and electricity price subsidy removal
should be carried out transparently and included all the stakeholders. Beside that, alternative
energy supply for oil fuel should be assessed and socialized to the people. Therefore, the
transition period to unsubsidized energy price will run smoothly.

7. References

• Board for Energy Planning Coordination, “General Policy for Energy Sector”, 1998.
• Center of Energy Information – Ministry of Energy and Mineral Resources, “Study on
National Energy Reserve for Securing Energy Supply”, 2003.
• Center of Energy Information – Ministry of Energy and Mineral Resources, “Study on
Energy Restructuring”, 2002.
• Directorat General of Electricity and Energy Utilization, “Statistics of Electricity and Energy
2002”, 2003.
• Directorat of Mineral and Coal Enterprise, “Statistic of Coal 2002”, 2003.
• Directorat of Oil and Gas, “Data and Information on Oil and Natural Gas”, 2003.
• Embassy of the United States of America, “Petroleum Report Indonesia 2002”, Jakarta
2003.
• International Energy Agency, “Oil Supply Security: The Emergency Response Potential of
IEA Countries in 2000”, OECD/IEA, 2001.
• PT. PLN (Persero), “Statistics of PLN 2002”, 2003.
• Winarno, Oetomo Tri, “Thoughts on Self-supported in Energy Sector in Indonesia”, Institute
of Technology of Bandung, 1999.

15