One island, three LNG exporting countries Hanan Nugroho   ;   Senior Energy Planner at the National Development Planning Agency

JAKARTA POST,  30 Desember 2013

                           

Kalimantan (Borneo) is very important in the global liquefied natural gas (LNG) industry, since huge reserves of natural gas — among the world’s largest — are found in this island. In addition, three natural gas liquefaction complexes are located on the island.  The first one is Badak LNG in East Kalimantan (capacity: 22.6 mtpa/million tons per annum). The second one is Lumut LNG (7.2 mtpa) located in Brunei Darussalam. The third LNG complex is Bintulu 1-3 (total capacity: 18.8 mtpa) in Sarawak, Malaysia.  Kalimantan was geographically strategic for shipping LNG to Japan, to replace Alaska, which at that time sent LNG to the economic powerhouse. Japan’s large imports of LNG from Kalimantan have been followed by other East Asian industrial countries particularly South Korea and Taiwan, and recently by China. Since its beginning in the 1970s to date, East Asia is the world’s largest region for the LNG trade, where Kalimantan’s huge LNG plants serve as the principal suppliers and East Asian industrial countries as the customers.  The LNG industry plays a substantial role in the economy of the three nations of Brunei, Malaysia, and Indonesia. The oil and gas sector accounts for about 90 percent of Brunei’s GDP.  In Malaysia, the energy industry makes up about one fifth of its GDP. The export of natural gas, particularly in the form of LNG has saved Indonesia’s oil and gas trade, since Indonesia has been a net importer of oil since 2004.  Even though its domestic demand for gas is increasing, Brunei exports more than three quarters of its gas production as LNG. The small country relies on natural gas for almost all of its electricity generation; however it is also seeking to diversify its electricity generation by using renewable energy sources, in addition to imports of electricity from Malaysia. Malaysia’s natural gas demand for domestic use has been rising over the past two decades (particularly in the peninsular areas); however, the country is attempting to increase its LNG exports continuously.  Malaysia was recently ranked number two after Qatar as the world’s largest LNG exporting country. To facilitate gas transportation for the domestic market, Malaysia has developed an extensive gas pipeline network particularly in peninsular Malaysia. Malaysia also imports natural gas via pipeline from Indonesia (Natuna Sea), and has just developed a regasification terminal.  Badak, with its eight trains is still the world’s largest single-site liquefaction plant.  Badak in the future might reduce its exports and shift gradually to meet domestic demand for gas.  LNG still accounts for less than 10 percent of the world’s natural gas demand. However, from now until 2020 it is expected that the global trade for LNG will grow at 6.5-7 per cent annually. East Asia will still be the dominant market for LNG; however, demand will also increase in Western Europe and the USA.  What will be the role of Kalimantan’s largest liquefaction plant, Badak?  Badak was developed with the intention to supply export markets. About four decades ago, demand for natural gas in Indonesia was almost negligible.  On the other hand, Japan, which was at that time in a stage of rapid economic growth and lacking an indigenous energy supply had massive demand for natural gas. Badak was the logical source. After three or four decades, the story is different. Indonesia’s economy has been growing rapidly, and the country’s demand for energy, including natural gas, is rising significantly.  The electricity and the manufacturing industries — most of them in Java island — are thirsty for natural gas. After producing LNG for nearly four decades, it makes sense that Badak is changing its LNG production orientation from exports to gradually serving the increasing domestic consumption.  Badak could have started sending natural gas to the domestic market (primarily to Java) earlier, as most of its export contracts expired in 2010/2011. However, due to the lack of availability of infrastructure (either pipelines or LNG floating storage and regasification facilities) shipments to the domestic market did not materialize. Since there was no other alternative at that time most of the contracts were extended for another ten years. The development of Indonesia’s first floating storage and regasification unit (FRSU) off the north coast of Jakarta has allowed the shipment of LNG from Badak. Hopefully other FSRUs will follow.  Badak’s export capacity will decrease (post 2020), due partly to diminishing production of gas fields that currently supply the LNG plant, and partly to the expiration of the already prolonged export contracts.  Even though there will be a decrease in production capacity, the amount of LNG/natural gas produced in Badak will still be large enough and very meaningful for Indonesia’s domestic market. ●