Indonesia Gas Market
Indonesia’s natural gas market is characterized by a low level but quickly growing domestic consumption rate and a large export segment (largest in Asia).
In 2010, 50% of Indonesia’s gas was exported mostly to North Asian markets in the form of LNG, a level that fell from 62% the previous 10 years. Conventional gas sources are failing to meet export demand is part of the reason for the higher portion of domestic consumption. The Arun LNG export facility with a capacity of 12.3 MMtpa is expected to shut down in 2014, whereas the Bontang LNG facility with a capacity of 22.3 MMtpa is currently operating at 75% utilization. Both facilities face a shortage of gas supply.
Domestic consumption has risen over a 100% for the 10 years to 2010. The rise is a function of Indonesia’s strong economic growth – likely to reach a USD1.0 trillion GDP level by the end of 2012 – and its low per capita gas consumption level. On a per capita basis Indonesia’s gas consumption rate of 6.1 Mcf/y falls between Bangladesh and Pakistan despite Indonesia’s much higher level of GDP per capita. Thailand, a net gas importer at a relatively similar level of economic development, consumed 23 Mcf/capita in 2010 – 3.7 times Indonesia’s consumption rates.
Indonesia’s low level of domestic gas consumption results from its history of reliance on cheap oil sources (Indonesia was an OPEC member until 2007). A significant level of Indonesia’s power capacity is fuel oil or diesel based and often at subsidized price levels. As oil subsidies wane and economic growth continues, gas will gain share within Indonesia’s strategic fuel mix.
Global Natural Gas Supply/Demand Trends
Domestic gas demand is such that the country is building three LNG regasification facilities – two in Java and one in North Sumatra – to offset the shortage of gas supply from conventional sources within the region. The pipeline feeding Java from Sumatra is estimated to be operating at 50% capacity whereas the pipeline north to Duri is operating at 91%. With non-frontier conventional gas sources at best expected to remain stagnant going forward, Indonesia will focus on unconventional and frontier area conventional gas supplies.
To support the need for unconventional gas supplies the Indonesian Government is supporting CBM development with incentivized Production Sharing Contract (PSC) terms that result in contractors earning 45% on an after tax basis.
Natural Gas Commercialization & Price: LNG, Steam Flood, Electricity & Industry
Conventional Gas Production & Reserves: Declining
Indonesian CBM PSC Terms - Fiscal Flow=45% After Tax; Most Favorable Terms In Country