JP/Yuli Tri Suwarni

BP had good news for Indonesia recently. It announced that it, along with Italian firm Eni, will start producing coal bed methane (CBM) from the Sanga-Sanga block in East Kalimantan in “a few years”.

It will be the first production of CBM in Indonesia. The gas will be supplied to the Bontang LNG plant located in the province and thus enable Indonesia to become the world’s first CBM-to-LNG producer.

CBM or coal seam gas (CSG) is natural gas that is extracted from coal beds. Indonesia is estimated to have a potential CBM resources of 450 trillion cubic feet, about three times as much as the country’s potential and proven natural gas resources, which now stands at around 165 trillion cubic feet.  

The discovery of CBM by BP and partner underlines that Indonesia has much gas underground and, given its abundance, gas will become one of the primary energy sources in Indonesia, replacing oil, where reserves have fast declined over the past decade.

Indonesia, formerly a member of the Organization of the Petroleum Exporting Countries (OPEC), has been a net oil importer since 2004. The national oil and condensate production has dropped to about 950,000 barrels per day (bpd) at present from 1.4 million bpd in 2000, while the national oil consumption has continued to increase and now reaches around 1.5 million bpd.

Efforts aimed at increasing the national oil production haven’t thus far brought much fruit. Most, if not all, the country’s giant fields have been discovered, exploited and now see their production decline due to natural depletion of reserves. The biggest oil field to be discovered over the past decade is the Cepu block in border areas of Central Java and East Java, which now produces around 13,000 bpd of oil.

There are many old wells here, which are believed to hold oil that is left unexploited using conventional technologies. But, it is not easy to extract the oil. It can only be extracted using the so-called enhanced oil recovery (EOR) technologies, which are not cheap. The application of such technologies will result in a sharp increase in the production costs, which, under the production sharing system, should mostly be covered by the government. The increase in the “cost recovery” sparked strong protest from the public in the past and following the strong protest, the House of Representatives has set up a cap on the cost recovery. This, in turn, has dampened the appetite of investors to exploit oil in the old wells.

Given these situations, there is a small chance the national oil production will increase in the coming years. Some experts even predict President Susilo Bambang Yudhyono will see the national oil production to decline to about 850,000 bpd by the end of his term in 2014, from about 950,000 bpd at present.

The oil production deficit has forced to spend billions of dollars of subsidy every year to provide cheap oil for the domestic market. As a consequence, the government must cut funds for the development of other sectors such as infrastructure, education, health etc.

Indonesia has no option but to reduce its consumption of oil. In fact, the government has launched programs to promote the use of a number of alternative energy to replace oil. The alternative energies include gas (in the form of LPG, CNG, LNG or pipeline gas), biofuel, geothermal steam and coal. Indonesia has huge biofuel and geothermal potential and is the world’s largest exporter of coal.

The energy diversification program has not been completely successful. The domestic production and use of biofuel remains negligible despite Indonesia’s status as the world’s largest producer of CPO — one of the most productive raw materials for the making of biofuel — and the government’s readiness to provide subsidy for biofuel.

Meanwhile, geothermal resources, which are said to generate a total of 27,000 MW of power, can only generate around 1,000 MW. Few investors are interested in developing geothermal power plants due to the huge investment needed for such projects and the low price set by state owned electricity firm PT PLN for the purchasing of geothermal power.

There are, however, positive results as far gas and coal are concerned. The kerosene-to-LPG conversion program, for instance, which was greeted with pessimism by some experts when it was launched in 2007, has been proved successful. The program, initially focused in Jakarta and surrounding areas, has expanded to other parts of the country. Lower-income households now enthusiastically use LPG for cooking and the government has been able to save Rp10.2 trillion (more than more than US$1 billion) in kerosene subsidy until the third quarter of this year thanks to the program.

PLN, the country’s biggest consumer of oil, has also used more gas and coal, rather than oil, at its power plants. The firm, which booked big losses almost every year in the past decade, recorded a surprising big profit of Rp 6.2 trillion in the first semester of the year due to, among others, reduced consumption of oil. The firm is expected to reap larger revenue next year thanks to its planned use of more gas and coal. Some of the coal-fired power plants now being built under the Phase One 10,000 MW crash program will start operation next year.

Increased consumption of gas does not only occur in the power sector, but also in the industrial sector and households. In order to meet the rising demand, state owned gas distributor PT Perusahaan Gas Negara (PGN) in partnership with PLN and state owned oil and gas firm PT Pertamina has planned to build an LNG receiving terminal in Jakarta Bay next year.

Gas and coal has been playing an increasingly pivotal role in meeting the country’s energy needs over the past years. The trend will continue in the coming years.
    

The author is a staff writer at The Jakarta Post.

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