Indonesia - Energy Sector
Although Indonesia has been a net importer of oil since 2004, it is the sixth largest net exporter of natural gas, and the largest net exporter of coal. However, as a result of inadequate infrastructure and Indonesia’s complex business environment, Indonesia has struggled to attract investment sufficient to meet its energy development goals. Indonesia’s total primary energy consumption grew by nearly 50 percent between 1999 and 2008. Oil continued to account for the most significant share of Indonesia’s energy mix, at 44 percent in 2009. Coal consumption tripled over the decade, accounting for 29 percent of total energy consumption in 2008, surpassing gas as the second most consumed fuel.
Indonesia’s government, in its 2014 National Energy Policy, set a target to provide every household in the country access to electricity by 2020. Over the past decade, the percentage of the population with access to electricity rose from approximately 67% in 2010 to over 99% in 2020. The government aims to achieve 100% in 2021. Although access to electricity has grown, connection quality has remained a challenge, and power outages are common.44 Eastern Indonesia does not have the high electrification rates as the western area of the country; for example, Papua and West Papua in eastern Indonesia are the only provinces with electrification rates below 60% (Papua at 22.7% and West Papua at 44.2%). These areas are more remote which creates logistical problems that need to be overcome before electrification can take place.
Coal
The International Energy Agency says Indonesia was the world's largest exporter of coal in 2020, with 31.5 percent of the total. The Japanese government says Indonesia accounted for around 13 percent of the coal it imported for power generation in 2020.
The world's top coal-exporting country imposed a temporary ban on coal exports on 01 January 2022, citing supply shortages for its power plants. The export ban was introduced to resolve the problem of coal shortages at power plants due to the lower prices of the fuel for domestic use.
Indonesia's government allowed a resumption of coal exports conditionally, following an improvement in the supply situation for domestic power plants. On 13 January 2021, the government announced that it would allow 37 cargo ships loaded with coal to leave port. The government also said the export ban had been lifted for miners who have contracts with the state power company and had met a requirement to supply at least 25 percent of their annual output for domestic power plants in 2021. The government explained that the situation had now improved and the power plants had secured sufficient supplies.
Indonesia had 42.8 billion short tons of recoverable coal at the end of 2020, located primarily in South Sumatra, East Kalimantan, and South Kalimantan. The Ministry of Energy and Mineral Resources expects reserves to increase as a result of the amendment of Law No. 4, which requires producers to submit the details of their exploratory findings to renew or transfer mining permits.
Coal production grew by approximately 105% over the past decade from 303 million short tons in 2010 to 621 million short tons in 2020. This increase was the result of a sharp growth in demand, particularly in Asia where China and India are the top export destinations for Indonesia’s coal. Use of coal has more than doubled in the past decade in Southeast Asia as demand reached 366 million short tons in 2019, of which Indonesia accounted for 153 million short tons, or 42%.
In 2019, Indonesia was the world’s largest exporter of thermal coal at 506 million short tons; nearly 75% of output was exported. Indonesia supplied 32% of the world’s coal exports (502 million short tons) in 2019, including 41% of global thermal coal trade. In 2020, the majority of Indonesia’s coal exports went to Asia, especially China (32% of total coal exports), India (25%), the Philippines (6%), Japan (6%), and Malaysia (6%).
Although the coal sector was open to foreign investment in the 1990s through coal contracts of work, new investment was closed again after 2000. A new mining law, passed in December 2008, opened coal to foreign investment again, although it eliminated the difference between foreign and domestic ownership structures. Total coal production reached 255 million metric tons in 2010, including exports of 198 million tons.
According to EIA estimates, Indonesia has 4.8 billion short tons of recoverable coal, of which the vast majority is located in Sumatra and East and South Kalimantan. Government and industry estimates suggest that the resource base may be considerably higher than this amount. Indonesian coal production – which is primarily bituminous or sub-bituminous in grade – approximately quadrupled between 2000 and 2009, reaching 333 MMst in 2009. In the same year, Indonesia consumed 77 MMst of coal, which was less than a quarter of its production, but more than three times the consumption level in 2000. Power plants accounted for nearly two-thirds of the 2009 total coal sales. Electricity sector demand for coal was expected to more than double by 2014as a result of coal-fired generation capacity additions.
Indonesia was for a time the second-largest exporter of coal (after Australia) on the international market, and in 2018, it surpassed Australia as the world’s largest exporter of coal by weight. Indonesia’s coal exports primarily serve Asian markets, with about 70 percent of 2009 total exports being sent to China, Japan, Taiwan, and other Asian markets. In 2010, Indonesia was the leading source of Chinese coal imports.
In early 2010, the Government of Indonesia also formally decided to become a candidate country of the Extractive Industries Transparency Initiative (EITI), which will increase accountability and transparency in energy revenue transactions between the government and oil, gas, and mining firms.
Perusahaan Listrik Negara (PLN) has unofficial plans that outline a retirement timeline for coal-powered plants in an effort to reach carbon neutrality by 2060.30 The first phase sees the closure of three power plants with a combined capacity of 1.1 GW in 2030. The second phase includes the closure of its conventional coal plants at 9 GW capacity by 2035. Supercritical plants at 10 GW will be retired by 2040 in a third phase, and the final phase of ultra-supercritical plants will be offline in 2056.
PLN has committed to stop building new coal power plants after 2023. However, before this deadline, another 35 GW and the Fast Track Program addition of 7 GW of coal-fired capacity will be completed. Any additional power generation is planned to come from renewable power sources.
Oil
As of January 2021, Indonesia totaled approximately 2.5 billion barrels of proved crude oil reserves.7 According to the Deputy Energy and Mineral Resources Minister, the replacement rate of oil reserves dropped to 50% in 2018 because of declining oil exploration and technology limitations. Refining capacity was insufficient to meet domestic demand, and Indonesia used imports to meet about half of its domestic petroleum product use.
Indonesia's oil industry is one of the oldest in the world. Oil in commercial quantities was discovered in northern Sumatra in 1883, leading to the establishment of the Koninklijke Nederlandsche Maatschappij tot Exploitatie van Petroleum-bronnen in NederlandschIndië (Royal Dutch Company for Exploration of Petroleum sources in the Netherlands Indies) in 1890, which was merged in 1907 with the Shell Transport and Trading Company, a British concern that had been drilling in Kalimantan since 1891, to form Royal Dutch Shell. Royal Dutch Shell dominated colonial oil exploration for more than thirty years. By 1911 Royal Dutch Shell operated concessions in Sumatra, Java, and Kalimantan (then called Borneo), and Indonesian oil was almost 4 percent of total world production.
The United States’ decision to freeze Japanese assets in 1941 made it impossible for Japan to pay for the oil it had been purchasing from the US, which constituted 80% of all oil being used by Japan. The abundant supply of oil, rubber, and other essential products in the Netherlands East Indies and Malaya which Japan needed for her vast war machine was a lucrative prize. Yet the embargo, far from deterring further Japanese aggression, prompted a Tokyo decision to invade Southeast Asia. By mid-1941 Japanese leaders believed that war with the United States was inevitable and that it was imperative to seize the Dutch East Indies, which offered a substitute for dependency on American oil. The attack on Pearl Harbor was essentially a flanking raid in support of the main event, which was the conquest the Indies.
Indonesia's most important oil fields, the Duri and Minas fields in the central Sumatran basin, were discovered just prior to World War II by Caltex, a joint venture between the American companies Chevron and Texaco, although production did not begin until the 1950s. By 1963 the Duri and Minas oil fields, located in Riau Province near the town of Dumai, accounted for 50 percent of oil production.
The post-independence government increased its control over the oil sector during the 1950s and 1960s by increasing operations of several government-owned oil companies and by stiffening the terms of contracts with foreign oil firms. In 1968 the government companies--Indonesian Oil Mining company (Pertamin), National Oil Mining Company (Permina), and the National Oil and Gas Company (Permigan)--were consolidated into a single operation, the National Oil and Natural Gas Mining Company (Pertamina). At this time, a new form of contract--the production-sharing contract--was introduced. A production-sharing contract split total oil production between the contractor and the government, represented by Pertamina, and allowed the government to assume ownership of structures and equipment used for exploration and production within Indonesia. Indonesia's contract terms were considered among the toughest in the world, with the government in most cases receiving 85 percent of oil produced once the foreign company recovered costs.
Annual oil production in Indonesia peaked in 1977 at over 600 million barrels. The official price of Minas crude was then about US$14 per barrel, a substantial rise from the 1973 price of about US$4 per barrel as a result of OPEC's successful market manipulations. Prices continued to soar in 1981, reaching US$35 per barrel, and oil exports peaked at US$15 billion, or about 70 percent of total export earnings. In 1982, however, production declined, reaching a low of 460 million barrels and the oil market began to weaken that same year, when Indonesia's Minas crude was priced at US$29. The market collapsed in 1986, bringing the Minas price to below US$10 per barrel. Recovery of oil prices began slowly, and by 1989 Minas was priced at about US$18 per barrel. Total production in 1989 was almost 500 million barrels, and oil exports were valued at US$6 billion.
Indonesia’s upstream oil sector is dominated by several international oil companies - in particular Chevron, Total, Conoco Phillips, Exxon, and BP. Chevron is the largest single oil producer in Indonesia, accounting for more than 40 percent of the country’s total crude production. PT Pertamina, Indonesia’s state-owned integrated energy supply company, accounted for approximately 15 percent of 2009 crude and condensate production, making it the second largest producer in the country.
Indonesia left the Organization of Petroleum Exporting Countries (OPEC) in 2008, as it had been a net petroleum importer since 2004. Crude and condensate output averaged 944,000 barrels per day (bpd) in 2010, down slightly from 948,000 in 2009.
Gas
EIA estimates Indonesia produced 2.2 Tcf of dry natural gas in 2020, mostly from offshore fields not associated with crude oil production. Production had remained relatively stable, fluctuating between 2.5 Tcf and 2.6 Tcf from 2014 to 2018, until it decreased to 2.3 Tcf in 2019. After accounting for more than a third of global LNG exports in the 1990s, Indonesia’s share of the global market in 2020 was 4.4%. In 2020, Indonesia exported approximately 593 Bcf of LNG, up from 582 Bcf in 2019. With exports of LNG destined to South Korea, Japan, and China, Indonesia is mostly a regional supplier.
According to Oil & Gas Journal, Indonesia had 106 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2011. Indonesia is the fourteenth largest holder of proven natural gas reserves in the world, and the third-largest in the Asia-Pacific Region. Although domestic consumption of natural gas has nearly doubled since 2004, Indonesia continues to be a major exporter of pipeline and liquefied natural gas (LNG).
Indonesia was the third-largest exporter of liquefied natural gas in 2009, following only Qatar and Malaysia. There are three operational liquefaction terminals in Indonesia, with a combined production capacity of about 1.6 Tcf (32 million metric tons (MMT)) per year. In 2009, Indonesia exported about 950 Bcf of LNG.
In 2010, the oil and gas sector is estimated to have contributed $23.3 billion to government revenues, or 20.9% of the total. U.S. companies have invested heavily in the petroleum sector. Indonesia ranked third in world liquefied natural gas (LNG) exports production in 2010. Indonesia's oil, oil products, and gas turned positive in 2009 with a $29.4 million surplus, but had been negative since with a 2010 oil and gas trade deficit of $627 million and a deficit of$602 million deficit Jan-Nov 2011.
Indonesia’s government promotes exploration of coal bed methane (CBM) and shale gas, in addition to conventional crude oil and natural gas. The Ministry of Energy and Mineral Resources estimated that CBM reserves totaled 453 Tcf in 2019. Although resources are significant, production has been lower than anticipated because of regulatory hurdles and environmental issues.
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