Opinion

East Asia energy geography:
Where does Indonesia stand?

Northeast Asia is just as important in this region in relation to energy and geography. Most notably, Japan and China are the world’s largest energy consumers, which use up to more than one-third of the world’s energy. It is also the region with the strongest economic growth.

Despite their considerable and fast-growing energy consumption, most people of Northeast Asia lack energy resources. They exhibit high dependency on imports for energy, making this region a major destination for the world exports of crude oil, coal and LNG.

Southeast Asia’s industrial developments are not as advanced as their northern neighbors; however, this region owns a much larger amount of energy resources. The populous Indonesia, Malaysia and Brunei are net energy exporters.

However, Southeast Asia’s energy consumption per capita is lower than that of Northeast Asian (for instance, Indonesia is 0.9 million ton oil equivalent/capita, while South Korea and Japan are 4.7 and 3.9 MTOE/capita).

A geographical mismatch between where energy reserves are exploited and where the commodities are demanded has long facilitated energy trading among the two neighboring regions.

Due to the archipelagic nature and lack of mainland transportation, most of the trades within East Asia, particularly from the Southeast to the Northeast, are done using ships/tankers.

Coal is sent from Kalimantan in Indonesia to the north (Taiwan, Japan, South Korea), whereas crude oil is flown from countries in the south (Indonesia, Malaysia and Vietnam) to the northeast. There are noticeable oil products/petrochemicals trades within the region, for instance from Singapore to Indonesia.

East Asians have cooperated in the trading of Liquefied natural gas (LNG), making the region the largest LNG market in the world.

The trade was created in the 1970s and currently Indonesia, Malaysia and Brunei ship LNG to Japan, South Korea and Taiwan. China has just joined the trade as a potential consumer.

Energy cooperation is not a new phenomenon for Southeast Asia. Indonesian pipelines transport natural gas to Singapore and Malaysia; a joint development for oil and gas was established between Malaysia and Thailand.

Laos, Cambodia, Thailand and Vietnam are trading electricity across borders. Crude oil produced in the region is sent to Singapore for refining and (parts of) the products are returned to the producing countries.

Coal is traded within ASEAN countries with lesser volumes than Indonesia’s exports to the northeast.

Several energy agreements have also been settled under the framework of ASEAN cooperation. ASEAN Council on Petroleum (ASCOPE) was established in 1976, a forum to realize the ASEAN Power Grid was formed among Heads of ASEAN Power Utilities/Authorities (HAPUA) in 1981.

A task force to develop a Trans-ASEAN Gas Pipeline was established in 1999. Most forums include Indonesia, which houses the headquarters for the ASEAN Center for Energy.

Due to a lack of indigenous reserves, there is almost no trade for fossil fuels among the northeast; however, refined product still exist. And the regions shared concern for energy security is quite great.

Long known as a region suffering from a lack of indigenous energy reserves, East Asia’s energy deficiency will grow larger as the region’s demand for energy soars, particularly in its largest countries: China and Indonesia. To address this, the region will need larger energy imports.

As well as increasing imports, we will also need to increase efforts to explore oil and gas deposits within the region. The tension of regional conflicts and competing ownership of energy reserves will increase in Natuna, South China and East China seas.

Indonesia, the largest energy exporting country in East Asia, due to an increase in its domestic demand, will no longer able to maintain its energy exports. Indonesia will need more natural gas, crude oil and coal burned domestically.

Some other countries outside the region are also seeing energy demand increase in East Asia, including in Indonesia, as an opportunity to increase supply.

From the southeast of the region, Australia has long prepared to increase its coal and LNG exports to East Asian. Australian exports are so far geographically less competitive than, for instance Indonesia, to supply the market. However, Australia is a potential supplier to Indonesia, its closest neighbor, for LNG for example.

From the northwest, Russia (not to count the other former Soviet Union) is eyeing the opportunity to deliver energy to East Asian. So far, Russia supplies oil and natural gas to Europe, most of them are exploited from the “close to mature” fields in western areas.

Russia’s “look far-east policy” might also be interpreted as seeking an opportunity to develop its eastern areas’ oil and gas potentials (East Siberia, Sakhalin, etc.). Agreements and project developments, particularly in natural gas, have commenced between Russia and its Northeast Asian neighbors (Japan, South Korea and China).

As the largest energy exporter in the region, having served East Asian (with coal, LNG and crude oil) for a long time, Indonesia’s position in the near future will be more “inward-looking” — emphasizing security in relation to domestic demand.

Indonesia is also considering restricting energy exports, but Asia’s largest energy exporter is also exploring the possibility of importing energy, particularly crude oil and LNG.

State-owned oil and gas company Pertamina has assessed the feasibility of importing crude oil from Kazakhstan and Iraq to feed Indonesia’s planned oil refineries.

The state-owned electricity company PLN explored the possibility of importing LNG from Iran and other countries to meet its growing gas-powered electricity plants.

In addition to regular energy dialogues (with Japan, South Korea, China, etc.), Indonesia has recently had several energy talks with Russia, discussing potential energy cooperation issues in relation to oil and gas, electricity (hydro in particular), renewable energy, to nuclear power plants.

The “Indonesia-Russia Energy Working Group” has been established this year and held its first meeting in Russia. It’s not too clear at this stage, however, where will Indonesia stand in the future of regional energy geo-politics?

It seems that by exploring imports and widening energy cooperation, Indonesia is thinking not only about its own security, but also that of the region, in which the country has long been a major contributor.

The writer is an energy policy analyst with the National Development Planning Board (BAPPENAS). The opinions expressed are personal.

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