extending lng exports while energy security remains uncertain
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8/3/2019 Extending LNG Exports While Energy Security Remains Uncertain
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Extending LNG exports while energy security remains uncertain
Hanan Nugroho, Jakarta | Fri, 04/18/2008 10:05 AM | Opinion
Last month, the government agreed to extend its exports of liquefied natural gas (LNG) to Japan beyondthe original contract expiry date of 2010/2011. The new contracts are for 3 million tons of LNG per year
(mtpy) over the first five years and 2 mtpy over the following five years.
Indonesia itself is facing a serious energy crisis. This is indicated by long queues for kerosene, LPG
shortages, power supply interruptions and huge energy subsidies. Power generators and manufacturers
are protesting about the shortage of gas. At the same time, the country is still recognized as one of the
world's largest exporters of LNG and coal. Do we really need to extend our exports of LNG to Japan,
while the country is having such problems in providing its own energy security?
The upsurge in oil prices is worrying the government and parliament, who have had to make adjustments
to the 2008 fiscal budget. They are also getting anxious about the 2009 budget, having projected energysubsidies for more than Rp 200 trillion. The government needs to respond to public concerns openly and
honestly. The root cause of the huge energy subsidies and energy crisis is our excessive dependence on
oil. The government has introduced energy diversification projects, such as 10-gigawatt coal-fired plants,
conversion from kerosene to LPG and biofuel promotion. However, these efforts have not been able to
reduce the share of oil in our energy mix, because -- apart from projects begun recently -- our oil
consumption has not been managed properly.
Natural gas is an ideal substitute for oil because it is cheaper and more efficient and produces fewer
emissions than oil. Over the past two to three decades, natural gas has become widely used across the
world, mainly in power generators. Indonesia -- with more natural gas reserves than oil -- implemented a
crash program to build combined cycle gas turbines in Java during the 1990s, but those power generators
(Tanjung Priok, Muara Karang, Muara Tawar, Tambak Lorok and Gresik, with a capacity of more than
5,000 megawatts) have to burn expensive oil, making them the largest beneficiaries of the energy
subsidy.
Power generators and manufacturers were complaining about gas shortages long before the recent
energy crisis hit consumers. The crises have been occurring for some time, but the government is still
choosing to stick to its longtime policy of exporting natural gas while importing oil and selling it cheaper in
the domestic market, instead of speeding up the supply of natural gas to mitigate our energy crises. For
businesses (state-owned companies), exporting LNG/natural gas to Japan, Korea, Taiwan, Singapore
and Malaysia while at the same time importing oil (crude and products) for domestic consumption means
profits.
But the "exporting gas, importing oil" model results in losses for the government because it then has to
offer the huge energy subsidy, hence preventing that part of the state budget from being allocated to
other important sectors. The revenues from exporting natural gas are small compared to the costs of
importing oil to meet the fast-increasing demand for energy in the domestic market.
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Where has our natural gas gone? Exported, in vast amounts. The first LNG exports began in 1977 to
Kansai Electric, Chubu Electric, Kyushu Electric, Osaka Gas, Nippon Steel and Toho Gas, and then to
Tohoku Electric, Tokyo Electric, Hiroshima Gas and Nippon Gas. After Japan, Indonesia's main LNG
export destinations are Korea and Taiwan (with exports to China and the U.S. in preparation). The last of
the main contracts will expire by 2010/2011, with others, to Taiwan, expiring in 2017. Indonesia also
exports its natural gas through pipelines to Singapore and Malaysia.
Even though domestic energy security is getting worse, the decision to extend the LNG exports to Japan
is not an incorrect one. The volume to be exported is smaller than that from previous contracts. At any
rate, lack of necessary infrastructure means local power generators and manufacturers will not be ready
to use the gas by 2010/2011. The infrastructure needed to transport natural gas in the domestic market,
which is expensive -- although cheaper than energy subsidies -- and takes a long time to construct, has
not been sufficiently developed.
The government awarded a "Special Right for Construction and Operation" for Cirebon-Semarang,
Semarang-Gresik and East Kalimantan-Java natural gas transmission pipelines two years ago, but so far
there is no indication the construction of those pipelines -- which will take three or four years to complete -
- has been started. Plans by state electricity company PLN, state gas company PGN and Pertamina to
build LNG-receiving terminals in Java are still nothing more than paper studies. Without making serious
efforts for a healthier energy mix, including by boosting the use of natural gas instead of oil, providing
energy security across the archipelago will become even more costly and might "burn" the emotions of
the people who already feel unfairly treated in the allocation of the country's energy wealth.
We have to shift our paradigm in managing national energy resources from one that prioritizes exports to
one that prioritizes the security of energy in the domestic market. The master plan for domestic natural
gas infrastructure has to be realized soon.
The writer is a lecturer in energy and natural gas economics for the Graduate Program in Natural Gas
Technology and Management, University of Indonesia. He can be reached at