Senior officials at Pertamina, Indonesia’s state oil and gas company, have stated recently that the country will become a net LNG importer by 2020. Their optimism on the extent and speed at which Indonesian demand for LNG is rising has taken some industry watchers by surprise.
Deliveries of LNG to the archipelago will not begin to outweigh its exports by 2020, nor for several years after that. Here’s why.
Indonesia has been one of the world’s leading LNG exporters for four decades and, although these overseas shipments are now down on their peak, domestic demand for LNG and, following on, imports has a considerable way to go to catch up.
The country loaded its first LNG cargo, at the Bontang plant in East Kalimantan, in 1977 and by 1984 Indonesia had overtaken Algeria to become the world’s leading LNG exporter. Shipments from Bontang and Arun, the nation’s second liquefaction plant, in 1988 accounted for almost 40% of the global trade in LNG.
Indonesian LNG exports peaked in 1999, at the 28.5M tonnes per annum (mta) mark, although the country remained the world’s leading LNG supplier until 2006 when Qatar took on that mantle.
The number of cargoes shipped from Bontang and Arun began to decline from the start of the new millennium, due to the dwindling reserves of gas in the fields feeding the plants.
Declining output from the two pioneering liquefaction plants has been offset, to some extent, by two new export terminals. The two-train, 7.6 mta Tangguh facility in West Papua opened for business in 2009 while the 2 mta Donggi Senoro installation on the island of Sulawesi was commissioned in 2015.
Flagging LNG production at the 40-year-old Bontang plant, where only four of the original eight trains are now in operation, has been given a boost over the past year with feed gas from the newly discovered offshore Jangkrik field.
Jangkrik was brought onstream earlier than planned, and at a higher output rate than originally envisaged. The first Bontang cargo utilising gas from the new field, a 22,500 m3 domestic shipment, was despatched in June 2017 to Benoa, a terminal on the island of Bali which makes use of a small floating storage unit (FSU) and floating regasification unit (FRU) combination to receive and process LNG.
Indonesian LNG production is also set to be boosted by additional Tangguh output and Sengkang LNG, a new small-scale project on Sulawesi being developed by Energy World Corp (EWC).
Following a final investment decision by BP in July 2016, a third 3.8 mta train is being built at Tangguh. Shipments are due to commence in 2020 and at least 40% of the Train 3 LNG is earmarked for domestic Indonesian customers.
EWC reports that Phase 1 of the Sengkang LNG terminal, involving the construction of a 0.5 mta liquefaction train, is 80% complete and that it will proceed to start-up once an offtake agreement with the state electricity distribution company Perusahaan Listrik Negara, for the supply of LNG to local users, is finalised. Subject to the conclusion of further sales contracts, three additional 0.5 mta trains could be built.
Domestic LNG demand
As part of efforts to reduce fuel bills and environmental pollution, the Indonesian government is committed to substitute natural gas for diesel fuel in electricity generation and industrial production to the greatest extent possible. Another aim is to boost domestic fertiliser manufacture using natural gas as feedstock.
In this drive to adjust the nation’s energy supply, the delivery of gas from the resource-rich eastern part of the archipelago to the main western markets on the islands of Java and Sumatra represents a major challenge. LNG offers the best solution to this logistics problem in a country of 14,000 islands that stretch over 5,100 km from east to west and 1,800 km north to south.
However, meeting the country’s growing demand for LNG comes with the attendant cost of providing the necessary infrastructure. Also, achieving the optimum balance between domestically sourced gas, continuing LNG exports and the start of imports from overseas requires careful consideration. The necessary infrastructure matrix includes not only large receiving facilities for the principal markets but also small-scale terminals to serve the more remote and isolated communities.
Indonesia now has four LNG receiving terminals with an aggregate regasification capacity of 9.5 mta. Two – Nusantara Regas Satu and PGN FSRU Lampung – are floating storage and regasification units (FSRUs). The third is the former Arun export facility, now reconfigured, while the fourth is the Benoa FSU/FRU installation.
Nusantara Regas Satu is the converted 125,000 m3 LNG carrier Khannur. Operated by Golar, the vessel entered service in Jakarta Bay in May 2012. PGN FSRU Lampung, a 170,000 m3 newbuild FSRU operated by Höegh LNG, followed two years later, stationed off Sumatra’s southern coast.
Arun in northern Sumatra exported its last LNG cargo in October 2014 and within four months had reopened as a 3.6 mta receiving terminal. The first cargo discharge at the Benoa facility in Bali took place in May 2016.
Several other receiving facilities are planned. A number of proposed terminals – the majority being FSRU or FSU-based projects with expected fast-track completion schedules – have been tabled, and it is this ambitious programme which has prompted statements saying that Indonesia would become a net LNG importer by 2020.
Recent events have shown this view to be over-optimistic. Progress with all the new schemes has been slow and most remain at the early heads of agreement stage, with gas purchase, logistics arrangements and participants still to be finalised.
The first of the new receiving terminals likely to be realised is the Jawa 1 gas-fired power plant at Cilamaya in northwestern Java, 110 km east of Jakarta. A 170,000 m3 FSRU able to regasify 3 mta of LNG has been ordered for the project at Samsung Heavy Industries and the plant is scheduled to commence operations in 2021.
LNG import role
Indonesia’s LNG production in 2016 was 19.9M tonnes, of which 16.7M tonnes, or 84%, was exported and 3.2M tonnes shipped to domestic terminals. The country’s LNG output is expected to remain stable until at least the early 2020s, and probably for considerably longer.
Indonesia’s exports are underpinned by long-term LNG sales and purchase agreements (SPAs) with overseas buyers. The expiry of several of these contracts in recent years has made greater volumes available for both the spot and domestic markets.
Approximately 25% of the country’s output has been sold on a short-term basis in recent years while all the local demand for LNG to date has been met by domestic liquefaction plants. LNG imports, as such, are yet to commence.
Pertamina expects to have a surplus of 47 LNG cargoes available from Bontang for delivery in 2018, up from 36 cargoes in 2017. In the absence of any notable increase in domestic demand this year and in view of the attractive prices paid by overseas buyers, most of those cargoes are expected to be sold in the international spot market.
In anticipation of the need for LNG imports going forward, Pertamina had earlier signed three long-term SPAs, with Cheniere, ExxonMobil and Woodside, covering an aggregate 4 mta and commencing in 2018. However, due to the slower-than anticipated growth in domestic demand and the flexibility inherent in US export deals, Pertamina is concluding swap deals for some of the US LNG it will purchase.
The energy company is also seeking to strengthen its own LNG sales options, not least by developing its international market presence. Discussions are underway with gas buyers in India and Bangladesh covering the supply of Pertamina-sourced cargoes to new terminals in the two countries.
With a population of 260M, Indonesia is southeast Asia’s largest economy. Electricity demand growth, at around 9% per annum, is the highest in the region.
LNG offers a flexible solution to many of the nation’s unique energy supply logistics challenges. No doubt LNG import volumes will begin to feature in the years ahead but at the moment there are no signs that Indonesia will become a net LNG importer before 2025 at the earliest.