After a tug-of-war in coal supply price negotiations for a coal-to-dimethyl ether (DME) conversion project with Indonesian state-owned enterprises (SOEs) Bukit Asam (PTBA) and Pertamina.
fter a tug-of-war in coal supply price negotiations for a coal-to-dimethyl ether (DME) conversion project with Indonesian state-owned enterprises (SOEs) Bukit Asam (PTBA) and Pertamina, United States chemical company Air Products & Chemical finally decided to leave all coal downstream projects, including the coal-to-ethanol gasification project with Kaltim Prima Coal (KPC) and Arutmin Indonesia.
The coal-to-DME gasification project was supposed to bring in US$2.3 billion in foreign investment from the US firm. The facility, whose construction project started in January last year and was initially set to be completed in 30 months, was planned to utilize 6 million tonnes of low-calorie coal supplied by PTBA to produce 1.4 million DME per year, enough to substitute 1 million tonnes of liquified petroleum gas (LPG). Based on Indonesia’s Rp 60 trillion ($3.9 billion) to 70 trillion LPG subsidy in 2021, domestic DME production could save the state budget around Rp 7 trillion per year.
However, a tug-of-war on the price set for the coal supply from PTBA has likely led to Air Products’ exit from the entire coal gasification projects in the country. Previously, the Energy and Mineral Resources Ministry suggested through its study in 2021 that the coal supply price for conversion into DME should be set at around US$19-21 per tonne. The ministry also estimated in that scenario that Pertamina, the designated DME off-taker, would have to buy the DME at around US$400-420 per tonne.
However, PTBA was against the proposed coal supply price range proposed because it was far lower than coal’s market price, which reached US$250 per tonne in 2021. On the other hand, Air Products pushed for the price to be below US$20, maintaining that its obligation was limited to providing production services to convert coal into DME. Meanwhile, Pertamina complained that it would have to buy DME at a higher price should the coal supply price to Air Products be set at market value.
Following Air Products’ exit, Bumi Resources said it was finalizing a collaboration with a new partner to replace Air Products for the coal-to-ethanol conversion project, although the firm did not reveal the identity of its new partner. Moreover, the Energy and Mineral Resources Ministry said that some Chinese companies had expressed their interest to invest in various coal “downstreaming” projects that include the coal-to-DME and coal-to-ethanol gasification projects.
Air Product’s exit from Indonesia creates a major delay to the country’s “downstreaming” efforts to produce added value for the country’s natural resources and reduce reliance on exports. The government also needs to obtain additional off-takers for the coal gasification project on top of Pertamina, because relying solely on the SOE could make the state budget savings from decreasing the LPG subsidy be hampered by the need to greatly compensate the state-owned buyer.
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