Analysis: Indonesia natural gas exports set to slump to 2-decade low in 2019
Indonesia’s natural gas exports, including both pipeline and LNG, are expected to fall to a two-decade low in 2019, marking the furthest it has dropped since peaking in the late 1990s, on the back of depleting gas fields and the lack of new upstream projects.
The decline underscores Indonesia’s diminishing role as an LNG exporter to Asian markets despite having one of the world’s largest gas reserves. It also highlights the challenges faced by the Southeast Asian country in meeting future domestic gas demand growth as projects flounder from the lack of investment.
Indonesia’s natural gas exports are projected to fall to 2.076 trillion Btu/d in 2019, down from 2.736 trillion Btu/d in 2018, according to its oil and gas regulator SKK Migas.
This will be less than half of the 4.397 trillion Btu/d it exported in 2003, the earliest official data compiled by the regulator. Indonesia’s LNG exports alone were as high as 4.886 trillion Btu/d in 2000, according to BP’s energy statistics.
Indonesia accounted for more than a third of global LNG exports in the 1990s, and as of 2014, it was still the world’s fifth-largest LNG exporter, supplying mainly to Japan, South Korea, China and Taiwan, according to the US energy department.
But it has now lost out to new producers like the US and Australia, and successive waves of resource nationalization have seen oil majors quit flagship E&P projects. While it has made some attempts to reverse the decline with new exploration policies, the new projects could take years to come to fruition.
Meanwhile, the downward trajectory of Indonesia’s gas exports will help thin some of the current glut in the market in the Asia-Pacific region. The S&P Global Platts JKM for September cargoes was assessed at $4.175/MMBtu on Monday, less than half of year-ago levels.
Indonesia’s gas supply to the domestic market is also expected to ease, to 3.935 trillion Btu/d in 2019, from 3.995 trillion Btu/d in 2018, SKK Migas said. While domestic gas supply has more than doubled from 1.480 trillion Btu/d in 2003, the pace of growth has slowed as the economy plateaus.
The country’s domestic gas supply exceeded export volumes in 2012, but demand growth has decelerated rapidly, with ambitious projects like its cross-country small-scale gas-to-power network struggling to take off.
LONG-TERM BOOST FOR NATURAL GAS
Despite the near-term decline in gas production, Indonesia is optimistic about its long-term outlook, and recently reversed projections that it would need to import LNG by 2025 to meet its gas deficit, citing projects coming online in the next five years.
Indonesia plans to increase the share of natural gas in its energy mix to 22% by 2025, from 18.1% in 2018, according to SKK Migas.
The 2025 target calls for a much higher volume of absolute gas supply because Indonesia’s overall energy demand is expected to grow to 248.4 million mt of oil equivalent by 2025, from 185.5 million mt of oil equivalent in 2018, SKK Migas said.
The largest shift in the energy mix will be in oil consumption, whose share will fall to 25% in 2025 from 45% in 2018, and in renewable energy which is expected to jump from 3.8% to 23%, posting the largest increase, SKK Migas said. Coal’s share is expected to drop marginally from 33.2% to 30% over the same period.
PERTAMINA’S GAS PORTFOLIO
Indonesia’s targets for gas-fired power generation will be backed by state-owned gas transmission and distribution company Perusahaan Gas Negara or PGN, which was recently taken over by Pertamina in a large reorganization of the country’s government companies to cut red tape.
In 2018, Indonesia’s ministry for state-owned enterprises approved the transfer of a 57% stake in PGN to Pertamina, aimed at consolidating state-run oil and gas companies under a single holding company.
The move was expected to eliminate overlaps between the two energy companies and smoothen decision making processes for vital pipelines and terminal infrastructure.
Following the consolidation, one of PGN’s objectives is to meet the natural gas demand of Pertamina and its facilities like oil refineries, as well as help state-run power producer PLN to convert fuel oil-based power plants to gas, PGN’s president director Gigih Prakoso said at the Gas Indonesia conference last week.
Pertamina will build a floating storage and regasification unit, or FSRU, with a capacity of 200 million scf/d at Cilacap in Central Java along with PGN to meet gas demand at the expanded refinery project, Heru Setiawan, Pertamina’s Director of Investment Planning & Risk, said.
Setiawan said the FSRU capacity is being expanded from a previous plan of 75 million scf/d.
Pertamina and Saudi Aramco signed a heads of agreement in November 2015 to invest $5.5-$5.8 billion to expand the Cilacap refinery from 348,000 b/d to 400,000 b/d.
The initial revamp project was designed to be completed in 2022, with Aramco agreeing to supply 260,000-270,000 b/d of crude to the refurbished refinery, Platts reported earlier.