The Badak LNG plant in Bontang, East Kalimantan, on July 1, 2015. (Antara Photo/Widodo S. Jusuf)

Indonesia's LNG Facilities and Their Contribution to the Economy

BY :SATYA HANGGA YUDHA WIDYA PUTRA

MAY 05, 2022

Indonesia is home to abundant natural energy resources. This energy abundance has certainly helped the country in becoming one of the world’s fastest-growing economies. It is hard to ignore that energy is a basic need and without it, we would be unable to function properly.

Energy can come from fossil fuels such as coal, oil, and gas. But there are also renewable energy sources, including solar, wind, hydropower, geothermal energy, and many others. 

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Being a nation that is still highly dependent on fossil fuels, Indonesia’s growing population and its continuously rising energy demand have put a strain on its declining reserves. 

However, there is one energy source that is still witnessing a surplus.

This energy source is relatively clean because it does not emit soot, dust, or fumes, while generating 30 percent less carbon dioxide (CO2) than fuel oil and 50 percent less than coal. It is also cheap and accessible. 

It is none other than liquefied natural gas (LNG). 

LNG is a colorless and odorless liquid fuel, which offers energy efficiency and strong environmental performance that can give a much-needed boost to the air quality in cities like Jakarta. 

LNG is created over millions of years from the transformation of organic matter such as plankton and algae. Creating LNG involves cooling natural gas down to -162 degrees Celsius, making it a cryogenic liquid. The process of cooling natural gas into a liquid state shrinks its volume, as it occupies 600 times less space compared to its gaseous form and also weighs less than water. This makes LNG easier and cheaper to transport or store. In archipelagic countries like Indonesia, LNG enables the transport of gas over distances to markets where pipeline delivery is not possible or uneconomical. 

Indonesia currently has three LNG plants in operation: Bontang, Tangguh, and Donggi-Senoro. The country also plans to devop an LNG plant in Masela.

Located in Bontang, East Kalimantan, the Bontang LNG plant consists of eight trains and is operated by LNG company Badak Natural Gas Liquefaction, which has Pertamina, VICO, Japan Indonesia LNG, and Total as its shareholders. The plant's total capacity stands at 22.6 million mt/year. It started with the discovery of a giant natural gas reserve at Badak Field, as well as Samberah, Nilam, and Mutiara fields in Feb. 1972. This was just one year after a similar discovery at North Aceh's Arun Gas Field, which has now become a regasification terminal. 

The Bontang LNG plant came into operation in 1977 with train A producing Indonesia’s first drop of LNG. This resulted in a dispatch of a maiden LNG cargo to Senboku, Japan via the LNG Aquarius on August 9, 1977.

Since then, Bontang LNG has become one of the world’s largest LNG plants. It now comprises Mahakam, Sanga-Sanga, East Kalimantan and Attaka, Makassar Strait, Rapak, and Ganal, Sebuku, Muara Bakau, and East Sepinggan Working Areas. Chevron’s Indonesia Deepwater Development (IDD) Project - Offshore Bangka Field Development will also boost the production coming from East Kalimantan. 

Eni and Nusantara Regas are among the firms that have supply offtakes from Bontang.

The plant also has Japanese buyers —namely Jera, Toho Gas, Osaka Gas, Kansai Electric, Kyushu Electric, and Nippon Steel— under long-term supply contracts with Pertamina. The deals, however, have already expired. 

The Tangguh LNG is a development of six gas fields located in the Wiriagar, Berau, and Muturi Production Sharing Contracts (PSC) in Bintuni Bay, West Papua. 

Its discovery of gas reserves came decades after that of Bontang, specifically in the mid-1990s by Atlantic Richfield Co (ARCO). Tangguh LNG is entirely operated and owned by BP Berau Ltd. Comprising both onshore and offshore production facilities, Tangguh LNG kicked off its production in 2009. It has already shipped up to 1,300 LNG cargoes in Indonesia and Asia. Tangguh LNG is working on expanding its plant with a third train or Train 3. The government has named the Tangguh LNG's Train 3 as one of its national strategic projects.

Tangguh LNG’s two existing trains produce 7.6 million tons per annum (MTPA). Train 3 is expected to add 3.8 million tons of LNG capacity per annum, bringing the plant's total capacity to 11.4 MTPA. BP Berau Ltd began supplying LNG for the domestic market in 2013. 

Indonesia's third LNG facility —the Donggi-Senoro LNG (DSLNG) plant—sits in Banggai Regency, Central Sulawesi. This LNG facility is a joint venture between Pertamina, Medco Energi Internasional, Mitsubishi Corporation, and Korea Gas Corporation. 

DSLNG is Indonesia's first LNG project to adopt a downstream business model based on Law No. 22/2001 on Petroleum and Natural Gas, which separates the development of upstream and downstream LNG businesses. 

A downstream LNG development model shifts the investment and any risks associated with the development of the LNG plant from the government to the downstream company.

Under this model, DSLNG purchases natural gas from Pertamina EP (Matindok Area) and PHE Tomori Sulawesi, Medco E&P Tomori Sulawesi, and Tomori E&P Limited (UK) (Senoro Field) as feedstock gas for the DSLNG-owned liquefaction plant. The gas then cools down and converts into LNG. It will then be stored and loaded onto LNG cargoes to be later taken to its buyers. 

With a production capacity of 2 MTPA, DSLNG is able to deliver 36 cargoes of LNG per year. DSLNG has formed term commitments with Chubu Electric, Kyushu Electric, and Korea Gas Corporation. In case the buyers do not take the cargo, then the cargo will be available for the spot market. 

The Abadi LNG Project is an onshore LNG project located in the province of Maluku. This project is expected to jumpstart in 2027. INPEX serves as the operator alongside Shell in the development of the Masela Block offshore Indonesia.

Masela is predicted to produce 9.5 million tons of LNG per year, and 35,000 barrels of oil per day. The project will supply 150 billion cubic feet of natural gas per day by pipeline. Following the approval of the revised development plan and the extension of the PSC by another 7 years, the PSC term will last until 2055.

With three operating LNG facilities and another one about to take off in the late 2020s, Indonesia has been maximizing its use of LNG for both domestic use and export. This is in a bid to not only meet the local LNG demand, but aso boost the state revenue and provide job opportunities to those in need whilst giving them a stable source of income and enhancing their purchasing power. 

BP Tangguh’s LNG project, for instance, has created over 1.5 million jobs and will add another 2 million until the end of its PSC in 2035. BP Tangguh will likely extend its contract, giving another boost to the economy. 

Indonesia’s state budget derives from tax and other non-tax revenues in both oil & gas and non-oil & gas sectors. The state budget goes to education, healthcare, infrastructure, information, technology, and communication, social protection, food security, tourism, law, subsidy, and village funds, among others. Thus, we have to be able to optimize our oil and gas lifting through better climate investments and handle cost recovery.

Indonesia's total revenue from LNG exports between 2015 and 2021 has dropped by -6.31 percent. This decline was in large part due to the Covid-19 pandemic, which had affected production in 2020 and 2021. The total revenue from domestic LNG sales, however, rose by 9.1 percent.

In the present time and the foreseeable future, LNG is regarded as clean energy that Indonesia must capitalize on during its transition from fossil fuels to renewables. LNG has a bright prospect and is expected to be used in the many decades to come before we reach our net-zero emission target by 2060. Access to LNG can also help lift people out of poverty, tackle energy poverty, improve local economies, clean the environment, and ensure access to modern and reliable energy.

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Satya Hangga Yudha Widya Putra, B.A. (Hons), MSc is the secretary-general of the Organization of LPDP Scholarship Recipients (Mata Garuda) and the co-founder of the Indonesian Energy and Environmental Institute (IE2I).

The views expressed in this article are those of the author.

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