A recent spike in global Liquefied Natural Gas (LNG) demand has driven down the share of small nations in the supply of LNG. Hence, Indonesia is now the fourth-largest exporter of LNG behind Qatar, Malaysia and Australia with a 7% share in global LNG exports. Indonesian export of LNG stood at 818 billion cubic feet (bcf) in 2013, as compared to 870 bcf in 2012.
Figure 1: Indonesia global LNG exports 1987-2013
LNG in Indonesia
The Energy Information Administration (EIA) defines LNG as such: “LNG is natural gas that has been cooled to -260°F for shipment or storage as a liquid, a process known as liquefaction. The volume of the liquid is 1/600th of its gaseous form. In this compact form, natural gas can be shipped in cryogenic tankers to receiving terminals in importing countries. At these terminals, the LNG is returned to a gaseous form (a process known as regasification) and transported by pipeline to distribution companies, industrial consumers, and power plants. Liquefying natural gas provides a means of moving it long distances where pipeline transport is not feasible, allowing consumers to access natural gas from regions that are too distant from end-use markets to be connected by pipeline.”
Indonesia currently has the capacity to process about 1.5 trillion cubic feet (tcf) of natural gas annually from three liquefaction plants currently operational in the country. These include Arun on the island of Sumatra, Bontang located in Kalimantan and Tangguh situated in Papua.
Figure 2: Indonesia LNG infrastructureSource: Energy Information Administration (EIA)
Plans for expansion include two new plants under construction including Donggi-Senoro and Sengkang. “The project developers of Donggi-Senoro LNG (Mitsubishi, Kogas, Pertamina, and Medco) expect the 100 bcf per annum plant to come online by early 2015. Sengkang LNG’s capacity of 100 bcf per annum is slated to be operational by 2017, according to PFC Energy. Inpex, a Japanese company, has delayed the expected startup date of the floating Abadi liquefaction terminal in southern Indonesia’s Arafura Sea until 2019. The terminal is planned to have a capacity of 120 bcf per annum,” says the EIA.
Indonesia’s exports are mostly regionally concentrated with major exports to South Korea, Japan, Taiwan and China. The declining trend in exports continues in almost all of these countries with EIA reporting that “Indonesian LNG exports to Japan fell by over 50% from 2010 to 2013, as export contracts with Japan expired and Indonesia diversified its markets.”
Figure 3: Indonesia LNG exports by destination in 2013
Tackling gas shortages in Indonesia
Indonesia was suffering from natural gas shortages after decades of production and export. In fact, the reserves of the country are dropping fast with natural gas reserves dropping to 108.4 tcf in 2013 over 141.06 tcf in 2012.
When the shortage situation began, the government was forced to adopt policies to cut back on exports in order to cater to local demand. In order to meet export and local demand, the country had to buy spot cargoes and build new LNG receiving terminals. “Pertamina and PLN (Indonesia’s state electricity firm) plan to develop eight small LNG receiving terminals in the eastern regions of the country by 2015, with a total capacity of 67 bcf per year. The government intends for these facilities to supply domestic electricity plants,” says the EIA.
Furthermore, some liquefaction plants are being converted to regasification plants. “The Bontang LNG terminal in East Kalimantan, the largest terminal in Indonesia and one of the largest in the world, has a current operating capacity of 1.1 tcf per annum. A lack of sufficient gas reserve additions in the Arun field has resulted in declining LNG exports from the Arun plant in recent years. Analysts expect the liquefaction plant to stop operating in 2014 as the plant is converted into a regasification facility,” states the EIA.
New policies imposed stringent limits on the export of natural gas. According to the Domestic Market Obligation (DMO) regulation imposed in 2006, 25% of all natural gas produced from production-sharing contracts in Indonesia must supply the domestic market. However, the government imposition of this regulation has been stricter than the stipulation itself. For instance, “the planned Donggi-Senoro LNG plans received government approval only after the developers designated 30% of the output explicitly for domestic consumption. Similarly, Inpex designated a third of the output from the planned Abadi floating LNG liquefaction terminal for the domestic market, according to the government.”
The combined effect of government effort and natural drop in natural gas output has led to a sequential decline in exports of Indonesia. The trend can be expected to continue with the decline in gas reserves and the increasing importance of Qatar and other middle eastern nations for LNG. Indonesia must not only find alternate sources of fuel for its own industries but also some other significant source of export income to replace the lost revenues of LNG export.