29 March 2012
Indonesian Gas Production
By: Nicholas Newman
Gas Production to Peak in
Gas could run
out by 2030?
Seam Gas discoveries could be seen as the long term solution.
Indonesian gas production is set to grow
from 72bcm in 2009 to a peak of 89bcm by 2012, before slipping back to 87bcm by 2019, reports Indonesia’s Ministry
of Energy and Mineral Resources. Such an increase in in output is reflected by the growing number of gas wells
being completed, which has risen from 88 in 2004 to 434 in 2009. In Current estimates put Indonesia’s total proven
gas reserves 94 trillion cubic feet (TCF), with a similar quantity likely to be
At present, rates of production, industry
insiders have estimated that natural gas resources could be exhausted by 2030, unless new gas fields are
discovered. Much of Indonesian gas production is located in the aging nearly drained gas fields of Northern Sumatra
and East Kalimantan.
Already new gas fields in South Sumatra
and elsewhere in the country are beginning to replace output from these maturing fields. The most recent example of
this is the recently opened 14 TCF BP led Tagguh project in the eastern province of Irian Jaya (West Papua), is
helping to boost the country’s gas output.
Indonesia's Coal Seam Gas
In addition, alternative source of gas is being explored, this is the development of the country’s unconventional
gas (coal seam gas) reserves located in the country’s major coalfields. Indonesia is estimated to have some 450 TCF
of coal seam gas reserves in its coal fields of Southern Sumatra and East Kalimantan. Indonesia is already the
world’s largest exporter of power station coal.
Several pilot projects in the coal fields
of Kalimantan have been announced. However, investors in coal seam gas are facing similar obstacles that have
hindered investors in oil, natural gas and power generation. Even so, a BP led consortium has announced a pilot
project to develop coal seam gas in the East Kalimantan coalfields.
Nevertheless, due to the complex business
and regulatory climate in Indonesia, development is likely to be at a slower pace than in neighbouring
Problems Faced Supplying the Domestic Gas
further afield for its gas supplies!
Domestic Gas Market
Despite gas output expected to climb from
72bcm in 2009 to 87bcm by 2019, Indonesian gas exports are set to decline. This is because of increasing domestic
Domestic demand is planned to grow,
because of the implementation of a government oil substitution policy, which seeks to reduce oil usage in the
Indonesian economy. Amongst the measures undertaken has been to cut subsidies to oil prices, this has contributed
to greater demand for gas by customers in the domestic market. As a consequence, Indonesia’s state owned power
generator PT PLN is undertaking a policy of converting its oil powered power stations to
Similar developments are taking place
elsewhere in the economy, including for transport, cooking and increased usage as a feedstock for its fertiliser
industry. These changes are expected to increase demand by 6% per annum for domestic gas from the present annual
consumption of 33bcm.
Supplying Java With Gas
Java is the economic heartland of
Indonesia and it is where most of the demand for domestic gas is located. The island only has 8 TCF of gas
reserves, insufficient to meet Java’s growing needs. At present, Java uses some 1.0 billion cubic feet per day
(BCFD), and by 2025 this could increase to 6.5 BCFD, due to growing demand for gas, and this increasing gas usage
poses serious supply problems for the Javanese market.
In order to meet increasing Javanese
demand and top up local production, Gas Negara the state owned transmission and distribution gas utility opened a
1000 kilometre pipeline linking the gas fields operated by Chevron and Pertamina in Southern Sumatra with Jakarta
in Java in 2007.
Fig 3 - Sumatra to Java Gas
Unfortunately, this is only a short-term
solution; Gas Negara is now looking further afield for new gas supplies to meet medium to long-term future needs,
including Kalimantan, Sulawesi and Papua.
One measure being implemented is the
construction by state owned gas transmission and distribution company, Gas Negara of a new LNG import terminal in
West Java, due to come on stream in 2012 with an initial capacity of 1.5 mtpa. Most of the LNG for the West Java
plant is likely to be shipped from the Bontang LNG export terminal that serves the gas fields of East Kalimantan.
However, given the rate of growth of demand for gas in Java, and the slow pace of development of new fields, it is
possible that Java could be importing gas from further afield, for instance Tagguh or even its neighbour Australia
In addition, there are long term proposals
to link new gas fields in East Kalimantan holding proved reserves of 25 TCF via a 750-mile pipeline to
Ira Miriawati, head of oil and gas
utilization in upstream oil and gas regulator BPMigas has observed that current domestic gas price is around $1.2
to $6 per MMBTU, while exported liquefied natural gas can fetch somewhere between $10 and $12." Unfortunately, for
Indonesia, such domestic pricing makes it uneconomic for investors to implement many of the increasingly expensive
schemes they are proposing.
Nor does it help that the government is
increasingly insisting that a certain portion of output in new schemes be reserved for sale to the domestic market
at below world market prices. Such insistence in reserving a portion of new output has delayed the go ahead for two
years of a project off the coast of Sulawesi, when the government proposed that all the output from this scheme
should be reserved for the domestic market.
Such a proposal would have made it
uneconomic for the investors Pertamina, Medco and Mitsubishi Corp, it was only this June that agreement was
finalised that permitted 72% of the gas produced would be reserved for the profitable export trade, to
Indonesian Gas Exports
plans to cut gas exports to meet growing domestic demand!
Indonesian Gas Exports in bcm
In 2005, Indonesia was the world’s leading
LNG gas exporter, today it is the third largest behind Malaysia, with Qatar in first place. Today, gas exports
share is 48% of total gas output. It is expected that gas exports are set to climb from 35.67 bcm in 2009 to
46.0bcm in 2012, before dropping to 24.2bcm by 2019.
Fig 5 - Indonesia to Singapore gas pipeline network
Source: Singapore Petroleum Company
At present, most of the exported gas is
delivered to neighbouring states and the North Asian markets by LNG tanker, though Singapore and Malaysia import
gas via pipeline direct from fields in Central Sumatra and the offshore fields in the Natuna Sea. There are
tentative plans to build an international gas pipeline network linking Indonesian gas fields with its neighbours
that would allow Indonesia to export gas to Southern China!
One of the reasons for the short-term
increase in exports is due to the new BP led Tagguh project in the eastern province of Irian Jaya (West Papua),
which came on-stream in 2009. This new field has estimated reserves of 14.4 trillion cubic feet of gas, and an LNG
export terminal able to process at least 7.6 million metric tons of LNG a year.
Tagguh cost the consortium behind it to
develop some $3.5 billion. Much of this gas is destined for delivery over the next twenty years by LNG tanker to
markets in China, Korea and Taiwan. Apart from Tagguh, Indonesia has two other LNG plants, the country’s first LNG
plant at Bontang in East Kalimantan, with a capacity of 22 million tonnes a year and the other at Arun in Northern
Sumatra, with a capacity of around 12 million tonnes a year. However, output has declined at these plants, due to
declines in supplies from the aging gas fields they depend on.
6- Tangguh LNG Project
Figure 4 BP's new Tagguh LNG project in Bintuni Bay, Irian
Future Gas Field Investment
Investors have announced four new gas
fields that will include LNG plants to meet the needs of markets both at home and abroad that are due to come on
stream over the next decade. These are the Kutai Basin, off East Kalimantan, the Masela field in the Timor Sea, the
Natuna Sea block off the east coast of Peninsula Malaysia and the Senoro and Matindok fields off the coast of
Tangguh LNG is the third LNG hub in Indonesia. In
March 2005 the Government of Indonesia gave the go ahead for the Tangguh LNG project in Bintuni Bay of West
Investing in Indonesian
oil and gas
Indonesia's oil and gas future lies
offshore in the remoter deeper depths of its seas. However, to unlock the country’s oil and gas resources, the
country's government, needs to further improve its investment climate, if it is to attract the degree of investment
required to boost long-term oil and gas production. Unless it attracts the investors its requires, Indonesia could
become as big an importer of natural gas in the future as it is a net oil importer
For further information:
see page 23:
approaches for Indonesia