C

oal bed methane (CBM), once touted as a solution to Indonesia'€™s energy deficit, has not met all the initial expectations, with below-target exploration and production. A number of factors have contributed to this disappointing result and addressing these challenges could help Indonesia emerge as an important energy player.

Just recently, the government '€” as reported by The Jakarta Post '€” decided to lower its CBM production target to only 8.9 million metric standard cubic feet per day (mmscfd) for 2015, far below its initial target of 500 million mmscfd. Indonesia has huge CBM reserves of around 453 trillion cubic feet, mainly in Kalimantan and Sumatra.

This drastic revision of the CBM production target is due to the fact that many projects already approved by the government could not go through as expected. Businesspeople in the energy sector are no longer enthusiastic about investing in CBM projects.

Three factors have contributed to this lackluster mood: first, contradictory regulations; second, unaddressed environmental issues; and third, limited use of CBM to generate industrial activities in Indonesia.

In the regulatory area, regulations on CBM can be traced to the government'€™s 2006 regulation on national energy policy that aimed to ensure sustainability of energy supplies, both using fossil and renewable energy sources. Then, in 2007, the House of Representatives passed Law No. 30 on energy that aimed to achieve sufficiency in energy supplies.

The law and regulation are at the level of the central government, but implementation in the field often overlaps with local regulations issued by local administrations, as all the CBM projects are located in regions, where local governments are the de facto rulers.

On the environmental issues, CBM is still a contentious energy product. Although it is considered to be an alternative energy source, it is still a fossil-fuel energy source. Therefore, burning CBM is similar to burning other fossil fuels that create waste in the form of greenhouse gasses.

The production of CBM creates other environmental concerns. It needs a huge amount of water '€” around 12 to 15 million gallons of water per CBM well '€” to push out methane from the coal seams. Water from this process is contaminated and cannot be used even for agriculture let alone by humans.

Currently CBM is only used as fuel for power plants located near the location of CBM mining areas, to generate electricity for industries in the vicinity of the power plant or people living nearby.

The limited usage of CBM renders investment in CBM production unattractive.

Therefore, it needs some effort to market CBM for other uses, such as a raw material for fertilizer or petrochemical plants, especially those located near the CBM producing areas. CBM produced in East Kalimantan, for example, could be used as a raw material for fertilizer or petrochemical plants located in the province.

CBM could also be used as fuel for other industries, such as a steel-smelting plant. Or even more radically, CBM could also be used as automobile fuel in the form of compressed natural gas (CNG).

When CBM finds more uses as a commercial fuel, demand for this product will automatically increase and, therefore, investment in CBM becomes more attractive. When investment becomes attractive, businesspeople holding CMB concession areas will resume their production plans.

When investment in CBM promises big returns, concerns about regulatory issues will be discounted and questions about environmental impact can be mitigated. It also brings new opportunities for Indonesia to generate more investment and produce more CBM.

With CBM, Indonesia has the potential to redraft its energy charts just like the United States did following the discovery of shale gas. With the abundance of shale gas, especially with its low production costs, the United States is reducing its dependence on oil and gas imports.

To emulate the US with its shale gas, Indonesia needs to address all issues that make investment in CBM less attractive. To make it attractive, it needs regulatory support, down to the district level, so that there will be fewer or even no issues regarding redundancy and overlaps.

It also needs enhancement in technology, especially technology to separate methane from the coal seams so that it is cheaper to produce as well as more environmentally friendly. And last, it needs more demand from users of CBM, especially in industry.

If Indonesia can tackle these challenges '€” regulatory, environmental and most importantly wider use of CBM '€” it will reemerge as one of the important global energy players.