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By Nicholas Newman October 2014
Picture of burning gas flare

Indonesia contains large reserves of natural gas. Currently, the country contains the third-largest gas reserves in the Asia Pacific region, after Australia and China, accounting for 1.4 percent of total global gas reserves. Indonesia is the tenth largest global gas producer and 24th biggest consumer of gas. Currently, Indonesia produces around twice as much natural gas as it consumes, reports BP Statistical Review of World Energy 2013. The trouble is domestic and industrial customers are facing a gas shortage, despite sitting on huge reserves of natural and shale gas.

The trouble is gas output is failing fails to meet domestic demand, because of:

  • existing export contracts to markets abroad.
  • production, distribution and market problems, which have resulted in regular gas shortages being experienced by gas power stations and industrial consumers.
  • investment in gas exploration and production is failing to keep up with growth in demand.
  • declining output from ageing gas fields.

As a result, power stations have to rely on coal and oil as backup fuels, while both industrial, commercial and residential customers depend on backup diesel generators, thus adding to the pollution in city areas.

Therefore, the state-owned gas transportation and distribution company Perusahaan Gas Negara (PGN) has not been able to satisfy domestic demand. This has led to problems for the state owned electricity company Perusahaan Listrik Negara (PLN). Since this is the largest domestic gas consumer. Such gas shortages are due to gas production and transmission obstacles, which force PLN to turn to other fossil fuels, such as oil, to generate power. However, blackouts happen frequently across the country (in particular outside the bigger cities on Java such as Jakarta), thus hurting the nation’s industries. Moreover, more than 80 million Indonesians do not yet have access to electricity as is shown through Indonesia’s current low electrification rate of less than 70 percent.

natural_gas_production_consumptionForecasters expect Indonesian gas production is set to grow from 72 bcm in 2009 to a peak of 82.0 bcm by 2010, before slipping back to 87 bcm by 2019, reports Indonesia’s Ministry of Energy and Mineral Resources. Such an increase in output is reflected by the growing number of gas wells being completed, which has risen from 88 in 2004 to 434 in 2009.  Current estimates put Indonesia’s total proven gas reserves 94 trillion cubic feet (TCF), with a similar quantity likely to be discovered. However, there are doubts sufficient gas production capacity will be developed quickly enough to meet growing market needs.At present, rates of production, industry insiders have estimated that natural gas resources could be exhausted by 2030, unless new gas fields are discovered.


Problems Faced Supplying the Domestic Gas Market

Despite gas output expected to climb from 72 bcm in 2009 to 87 bcm by 2019, Indonesian gas exports are set to decline. This is because of increasing domestic gas usage.

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 gas.

Similar developments are taking place elsewhere in the economy, including for transport, cooking and increased usage as a feeds tock for its fertiliser industry. These changes are expected to increase demand by 6% per annum for domestic gas from the present annual consumption of 33 bcm.

Supplying Java with Gas

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 (BCF/D), and by 2025 this could increase to 6.5 BCF/D, 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. In addition other gas pipelines are at various stage of construction to link gas fields with customers such as Gresik-Semarang-Cirebon-Jakarta and Arun-Belawan, Lampung, Central Java, Banten, and Cilacap gas pipelines.

Unfortunately, these are 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 neighbouring Australia one day.

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 Java.

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. In 2010, there was proposal to 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 2012, that agreement was finalised that permitted 72% of the gas produced would be reserved for the profitable export trade, to proceed.

Indonesia’s Coal Seam Gas

In addition, alternative source of gas are being explored such as shale and coal seam gas. It certainly has plenty of coal seam gas locked away in the country’s major coalfields. CBM or coal seam gas (CSG) is natural gas that is extracted from coal beds. Indonesian government sources have estimated it has potential CBM resources of 450 trillion cubic feet, in its coalfields of Southern Sumatra and East Kalimantan. This is about three times as much as the country’s potential and proven natural gas resources, which now stands at around 165 trillion cubic feet. BP announced recently that it, along with Italian firm Eni, will start producing coal bed methane (CBM) from the Sanga-Sanga block in East Kalimantan in “a few years”.

In February 2014, NuEnergy signed a Letter of Intent with a strategic Asian investor that will result in a cash injection of A$4.3 million and a free carry for exploration wells at the Rengat production sharing contract in central Sumatra, Indonesia. Nevertheless, due to the complex business and regulatory climate in Indonesia, development is likely to be at a slower pace than in neighbouring Australia.

Indonesian Gas Exports


lng_infrastructure_mapAfter Qatar, Indonesia is currently the world’s second-largest exporter of liquefied natural gas (LNG), its main export destinations of Indonesian LNG are Japan, South Korea and Singapore, yet much of Indonesian gas production to supply such markets is located in the ageing nearly drained gas fields of Northern Sumatra and East Kalimantan. Unless new finds are found and brought on stream, Indonesia will have to start cutting back on gas exports, in order to meet domestic demand. Such a prospect will force its energy hungry customers to the north to look elsewhere. Already the Indonesian government has regulations ready to put a stop to the export of gas and coal in order to maintain power supplies. In addition, the Chinas Fujian, Japan and South Korea, are due to expire in 2014.
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.

lng_exportsIn 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 be set to climb from 35.67 bcm in 2009 to 46.0 bcm in 2012, before dropping to 24.2 bcm by 2019.

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. However, Singapore has announced in February 2014, that it will not renew gas import by pipeline contracts with Indonesia when contracts expire, as it has a floating LNG import terminal on-stream.  Singapore imports from Indonesia include 300 MMSFD from the Koridor block in South Sumatra operated by ConocoPhillips and 100 MMSFD from Natuna Sea block in the Natuna islands operated by Premier Oil BV. 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 ageing gas fields they depend on.

New Gas Fields Expected To Come on Stream in 2014

  • Sisi Nubi 2B, which is expected to produce 350,000 Mcf/d
  • Peciko, which is expected to produce 170,000 Mcf/d
  • Peciko 7C, which is expected to produce 125,000 Mcf/d
  • Bekapai 2A, which is expected to produce 1,021 b/d
  • Pertamina’s Gundih field in Java that is expected to produce 50,000 Mcf/d
  •  Manhattan Kalimantan’s Bayan A project in Kalimantan that is expected to produce 15,000 Mcf/d

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. Most centres of Indonesian gas production are located offshore. The largest of these are found in:

  1. Arun, Aceh (Sumatra)
  2. Bontang (East Kalimantan)
  1. Tangguh (Papua)
  2. Natuna Island

future gas field investment

Tangguh LNG is the most interesting in March 2005 the Government of Indonesia gave the go ahead for the Tangguh LNG project in Bintuni Bay of West Papua and production started in 2009. It contains over 500 billion m³ (17 Tcf) of proven natural gas reserves, with estimates of potential reserves reaching over 800 billion cubic metres (28 trillion cubic feet). The Tangguh gas fields were discovered by ARCO Exploration in the mid-1990s. They were called ‘Tangguh’ after the Indonesian word for ‘resilient’; the reserves are estimated to be over 18.3 trillion square feet. These fields have the potential to become one of the world’s premier natural gas supplies. At present, the processing facility consists of two LNG processing trains, a farm of storage tanks and an LNG tanker-loading terminal, as well as an aircraft landing strip, maintenance facilities, offices and a personnel accommodation complex. In future phases of construction the LNG liquefaction plant, depending on requirements, could be expanded to five or eight trains.


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 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 come become as big an importer of natural gas in the future as it is a net oil importer today.

For further information: 

Influential Companies in Indonesia’s Gas Sector 

  • Pertamina
   |   Website
  • BP Indonesia
|    Website
  • CNOOC Limited
    |   Website
  • Total
    |   Website
  • ExxonMobil
|    Website
  •   ConocoPhillips
|    Website
  •   Vico Indonesia
    |   Website
  •   PetroChina
    |  Website
  • Chevron
    |  Website
  •   Kodeco
    |  Website



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