Indonesia’s Gas Industry Faces Potential Shift to Importer Status Amid Soaring Domestic Demand

Bojonegoro, Regency of Abundant Treasures

The Indonesian energy sector is on the brink of a major transformation, with projections indicating a possible shift towards becoming a net importer of natural gas by 2040.

This significant development has been highlighted in a comprehensive white paper titled “Achieving Resilience in the Energy Transition to Safeguard Indonesia’s Economic Growth & Sustainable Development,” jointly prepared by the Indonesian Petroleum Association (IPA) and the esteemed energy research institution Wood Mackenzie.

The white paper, which delves into the nation’s energy challenges and prospects, was officially unveiled during the IPA Convex event held in BSD Tangerang on Tuesday, July 25, 2023.

According to Andrew Harwood, Director of Upstream Research and Carbon Management at Wood Mackenzie, this projected shift is rooted in several factors, particularly the insufficient investments and exploration activities in Indonesia’s upstream oil and gas sector.

These constraints are hindering the country from effectively matching the soaring demand from two key markets, namely the industrial and power generation sectors.

“Given the downward trend in oil and gas production and the surging domestic demand, Indonesia is likely to transition from a net gas exporter to a net importer,” Andrew emphasized during the insightful discussions at the opening panel of the second day of IPA Convex on Wednesday, July 26, 2023.

A closer examination of the current landscape reveals the industrial sector as the primary driver of domestic natural gas consumption, witnessing an aggressive growth trajectory in recent years. Citing data from SKK Migas for the first quarter of 2023, domestic gas supply has already reached a notable 67% in comparison to the export market.

During this period, the supply for domestic consumption reached an impressive 3,539 billion British thermal units per day (BBTUD), while exports accounted for 1,776 BBTUD. Notably, the industrial, electricity, and fertilizer sectors accounted for the lion’s share of domestic gas purchases.

Building upon the current demand trends, Wood Mackenzie envisions a significant surge in gas demand from the industrial sector in both business-as-usual and optimistic scenarios.

With an average annual growth rate of investment (compound annual growth rate/CAGR) projected at 4.8% and 10.3%, respectively, over the forthcoming decades, the industrial sector’s appetite for natural gas is set to escalate significantly.

However, this projection is not without challenges. The lack of substantial investments in the exploration and development of new fields poses a formidable obstacle for Indonesia’s domestic oil and gas production.

If not addressed, the country’s gas production is expected to fall short of the targeted 1 million barrels of oil per day (bopd) and 12 billion standard cubic feet of gas per day (Bscfd) by 2030.

Recognizing the urgency of the situation, Andrew Harwood emphasizes the need for a progressive approach in the upstream sector. This approach calls for swift action to ensure energy resilience and facilitate a seamless energy transition in Indonesia. Addressing this challenge is crucial to secure the nation’s energy future.

It is vital to note that Indonesia’s long-term oil and gas production outlook is closely tied to aging fields with inherently high exploration risks. Moreover, some untapped fields remain a potential opportunity that could significantly impact the country’s energy landscape.

The projected decline in domestic gas production, estimated at 12.6% and 4.3%, respectively, under the business-as-usual and optimistic CAGR scenarios, underscores the significance of immediate action to address the impending energy challenges. This calls for a cohesive and strategic approach, as the nation navigates its way towards a sustainable and resilient energy future.