The key challenge for the government, especially in the oil and gas sector, is how to balance exports with domestic needs for  energy.  With daily domestic demand of approximately 1.5 million barrels per day, Indonesia needs to build at least needs two new oil refineries. New discoveries have helped Indonesia’s oil production, and with the right technology, Indonesia’s competitiveness of oil production has seen an improvement in 2009; according to Ministry of Energy and Mineral of the Republic of Indonesia , the cost to produce oil in 2009 is US$ 11.95 per barrel, better than industry average of US$ 34.34 per barrel.

 

As the single largest holder of proven natural gas reserve in the Asia Pacific region, Indonesia’s gas plays important role for East Asia’s (Japan, China and Korea) energy supply. With reserve of 112 trillion cubic feet (TCF), Indonesia has expanded gas pipe network to neighbouring countries (Singapore and Malaysia). Hence, exponential growth demand of gas from domestic market has pushed Indonesia’s government to secure national interest by rebalancing of export and domestic market. This demand creates new opportunities for investors to support domestic gas logistics.

 

 

By the end of 2009, generating capacity of the whole of Indonesia stood at 30,500 MW. The electrification rate has only reached 65%, and this is disproportionately distributed on the islands of Java and Bali. This low electrification rate is reflected in per capita consumption of just under 600kWh. In order to increase underserved areas and increase electrification rates, Indonesia must generate new capacity at a rate of 9.2% annually up until 2027 (National Electricity Planning).   Meanwhile, consumption is growing at a pace of 6-7% annually. 

 

In order to bridge this gap, the government has embarked on two successive Fast Track 10,000 MW programs, which have been implemented in stages. These two phases’ of power capacity build-up will be fully operational by 2014.

 

While these two phases still rely most on coal fired power generation, as the owner of 40% world potential of geothermal, the next step is to optimize supply of geothermal energy. Other than that, to overcome transmission problem, there are many potential investments to build local or regional electric generation plant using local resources such as micro/mini hydro, wind or solar power.

 

Indonesia’s coal production reached around 320 million tons in 2010, while output in 2009 was above 250 million tons. This places Indonesia as the sixth largest producer of coal in terms of output, behind China, US, Australia, India and Russia. However, in terms of exports of thermal coal, Indonesia has emerged as the world’s top exporter due to its strategic location. In addition to strategic location, Indonesia is a low-cost producer because of its low cost of labor and its geology, whereby much of the coal is found near the land’s surface. Most coal development activities take place in South Kalimantan, Riau, Central Kalimantan, Jambi and East Kalimantan.

 

 

Indonesia is striving to create a low-carbon economy and President Yudhoyono has taken a lead on committing to cut carbon emissions by 26% from business as usual case by 2020, without international support, and up to 41% with the help of international donors. In our national energy strategy, Indonesia has also committed to allocating 20% of the energy mix for renewable resources by 2025.

 

In the future, to prepare for fossil energy depletion and to support the national carbon reduction program, Indonesia must more actively engage in developing environment friendly energy supplies. The table below shows Indonesia’s renewable energy potential.