More bad rap on Asian biofuels

[ Asia Times ]

by Marwaan Macan-Markar

BANGKOK - European Union (EU) demand for Asian-produced biofuels, particularly palm oil, is coming at a high social and environmental cost, a report released on Tuesday by the United Nations Development Program (UNDP) warns.

The UN agency in its annual "Human Development Report 2007/2008" cautioned countries in the region against following the lead taken by Indonesia and Malaysia, the main producers of palm oil as a biofuel.

"Expansion of cultivation of [oil palm] in East Asia has been associated with widespread deforestation and violation of human rights of indigenous people," said the report, entitled "Fighting climate change: Human solidarity in a divided world".

"Since 1999, EU demand for palm oil, primarily from Malaysia and Indonesia, has more than doubled to 4.5 million tons, or almost one-fifth of world imports," added the 384-page report. "Opportunities for supplying an expanding European Union market have been reflected in a surge of investment in palm oil production in East Asia."

UNDP climate change advisor Martin Krause said at the launch of the report in Bangkok: "There are a lot of safeguards that have to be built in if you want to make palm oil production environmentally sustainable. The debate on this has just begun."

The concerns echo a similar red flag raised last week by another report, "Up in Smoke: Asia and the Pacific", released by a coalition of British development and environmental groups. The rapid growth of palm oil plantations has resulted in massive deforestation in Indonesia, which has led to large amounts of carbon dioxide trapped in the forests being emitted into the atmosphere, stated that report.

"As a result of deforestation, some of which is for palm oil, Indonesia is the third-largest emitter of carbon dioxide, after the USA and China," it said. "Deforestation to make way for large-scale mono-cropping of energy crops obliterates the 'green credentials' of the biofuel."

These cautionary views about the downside of palm oil are expected to feed into discussions at an international climate change meeting to be held in early December in the Indonesian resort-island of Bali. The United Nations Climate Change Conference will be attended by representatives from more than 180 countries with a mission to craft a blueprint for global action to forestall the emerging environmental catastrophe caused by climate change.

The global cultivation of palm oil had reached 12 million hectares by 2005, according to the UNDP, which was almost double the plantation area in 1997. The agency notes that production is dominated by Indonesia and Malaysia, with the former registering the fastest rate of increase anywhere in terms of forests converted into palm oil.

According to the British report, the Southeast Asian archipelago has nearly 6 million hectares of land under palm oil cultivation and Jakarta has set its sights on further expansion. "In 2007, the Indonesian government signed 58 agreements worth US$12.4 billion in order to produce about 200,000 barrels of oil-equivalent biofuel per day by 2010."

Environmentalists view the forests of Indonesia and others in Asia, now under severe threat of being converted into palm oil plantations, as essential to absorb global carbon dioxide emissions. As important are peatlands, which are part of the region's natural forests and are likewise being destroyed at a rapid rate.

"Peatland forests are traditional carbon storehouses. Typically they store up to 30% carbon dioxide," said Shailendra Yashwant, climate and energy campaigner for global environmental lobby Greenpeace in Jakarta. "A 4-million hectare peatland forest in a province in northern Sumatra stores 14.6 gigatons of carbon dioxide."

Greenpeace studies reveal that nearly 28 million hectares of forests have been destroyed in places like Sumatra, Suleweisi and Kalimantan in Indonesia since 1990. Currently thousands of hectares of peatland are being cleared for palm oil plantations - all of which are owned by private companies.

The attraction to palm oil plantations, which preceded the emerging demand for biofuels from the EU, stems largely from the relative ease with which they can be grown and the economic returns they generate. Prices for palm oil have held up well over the years and its not a labor-intensive crop like many other tropical commodities.

As such, other Southeast Asian countries including Myanmar, Thailand, Cambodia, Vietnam and the Philippines are beginning to follow Indonesia's and Malaysia's slash-and-burn model of palm oil production. The Thai government has set its sights on having 1.6 million hectares under oil palm cultivation in the next two decades, a nearly five-fold increase from the current 320,000 hectares.

It's still unclear how much of that earmarked cultivation area will require clear-cutting. The UNDP pointed to some success stories, where environmentally friendly and socially responsible ways of cultivation have taken root in small-scale agro-forestry ventures. However to date, most of that green friendly production has taken place in West Africa, not Asia.

Bali's climate conference

[ inside indonesia ]

Rich countries should pay big bucks to reduce emissions in the developing world

Frank Jotzo

Source: http://siteresources.worldbank.org/INTINDONESIA/Resources/Environment/Climate Change_ExecSum_EN.pdf

Climate change has climbed up the agenda in the global public and policy discussion. Indonesia is no exception, as the country is vulnerable to future climate change impacts and is a major greenhouse gas emitter.

The spotlight is on Indonesia as the host of this year’s UN climate conference. Over 10,000 delegates, including ministers and heads of state, will descend on Bali in December. The talks are shaping up as the launching pad for negotiations for a new international agreement, after the first period of the Kyoto Protocol runs out in 2012.

Science shows more strongly than ever the risk of dangerous climate change. It is no longer just an environmental problem, but a challenge to development and economic prosperity. People in developing countries like Indonesia are most vulnerable. To limit the risk of dangerous climate change, the goal being discussed is a 50-80 per cent reduction in global greenhouse gas emissions by 2050 compared to levels in 2000. Global emissions rose by 70 per cent from 1970 to 2004. Continuing on this path would set the globe on a trajectory of rapid climate change.

To turn ever rising global emissions around is a daunting task, and all countries need to be involved if it is to happen. Rich countries are historically responsible for greenhouse gases already in the atmosphere and can more readily pay for action. But the bulk of the increase in greenhouse gas emissions each year comes from developing countries. The international discussion tends to focus on China and India as the global centres of growth, but Indonesia has huge emissions from deforestation, and emissions from energy use are growing swiftly as well.

Impacts and Indonesia’s vulnerability

Climate change is not just an issue of higher temperatures and sea-level rise, but of flow-on effects throughout the climate system, in particular changes in rainfall patterns. Indonesia can expect longer dry seasons and shorter but more intense wet seasons. That means greater risk of flooding and droughts. Agricultural growing patterns will change, and with that come risks to regional food security.

Sea-level rise can cause sea-water inundation, with damage to agricultural growing areas and urban infrastructure. Higher temperatures worsen the spread of water- and vector-borne diseases, and have direct health effects through increased heat stress. Impacts are expected to differ strongly between regions. In some ways climate change could be beneficial, but overwhelmingly the impacts disrupt established systems.

Jakarta flood 2007 - Taxi drowned Source: gajahmada - flikr / Wikimedia Commons

Climate change will affect the poor more than the rich, because they are often more vulnerable to disruptions to their physical environment. Flooding in Jakarta in 2006, for example, hit poor flood-prone areas whose residents could not readily pay for health care or reconstruction of their homes.

Adapting to climate change will be important for continued development and economic prosperity. Infrastructure will need upgrading, from transport networks to flood defences. Improvements will be needed in public health, emergency management, agricultural extension, urban planning and so forth.

But spending scarce public resources in preparation for long-term future risks is problematic. In Indonesia as elsewhere it is difficult to justify spending big money on structural improvements for climate change, when there are many more pressing concerns in areas like health and education.

Even further down the list are investments to reduce greenhouse gas emissions, whose benefits are dispersed over the whole globe and over future generations. This leads us to Indonesia’s greenhouse gas emissions.

Deforestation

Indonesia’s carbon emissions made headlines earlier in 2007 when a report entitled ‘Indonesia and climate change’ pointed out that Indonesia is the third largest greenhouse gas emitter, behind the United States and China, and ahead of Brazil, Russia and India. This is on account of land-use change, mainly deforestation. Clearing land releases carbon stored in trees and in biomass below ground into the atmosphere as carbon dioxide. This occurs either by fire or by later decomposition of wood and wood products. Peatland fires in Kalimantan and Sumatra are a major source of carbon dioxide emissions, and also a big factor in the ‘Asian haze’.

To substantially slow global deforestation will require tens of billions of dollars per year, not tens of millions

Deforestation is thought to account for almost 20 per cent of current total global greenhouse gas emissions, with Indonesia and Brazil the largest sources. Tropical forests are often converted for private economic gain that is small compared to the amount of carbon dioxide released, when emissions are valued at prices paid in emerging carbon markets in developed countries.

Plans for an international incentive scheme against deforestation are expected to figure prominently at the Bali meeting. Mechanisms need to be devised that have real prospects of reducing deforestation and that encourage financial flows from rich countries. Different models are in the debate, including a global fund to pay for avoided deforestation or, alternatively, creating tradable offsets for avoided deforestation. Each model has its own difficulties, from how to estimate the amounts of emission saved to how to allocate funding and check it is spent properly.

Indonesian provinces that have not yet begun to exploit their natural forest resources heavily may be interested in carbon payments as an alternative to large-scale land conversion. Large amounts of money will be needed, to essentially buy out competing economic interests. Incentives to retain forests need to outweigh the opportunity costs of foregoing other development options.

Australia recently pledged A$200 million over five years to support projects aimed at reducing net forest loss, principally in Indonesia. This sends a positive signal, but by itself it is the proverbial drop in the ocean. To substantially slow global deforestation will require tens of billions of dollars per year, not tens of millions. And at current rates of forest conversion, little time is left.

Fossil fuel emissions

The largest share of greenhouse gas emissions globally is carbon dioxide from burning coal, oil and gas. Indonesia’s fossil fuel emissions account only for a little under 1.5 per cent of the world total, about the same as Australia. But they are rapidly rising. They are now two and a half times larger than in 1990, and over that period have grown at a slightly faster rate than those of China. For the world as a whole, the rise since 1990 is about one third.

Remarkably, Indonesia’s emissions have risen faster than GDP growth, in contrast to most other countries. Over recent years, there has been a marked shift in Indonesia’s energy mix toward high-emissions sources. Most of the increased energy demand is met using coal, the most greenhouse gas intensive fuel, and oil products for transport. By contrast, use of gas (which has relatively low emissions) has stagnated since the financial crisis, and growth in renewable energies such as geothermal has been slow.

There are straightforward economic reasons for this. Indonesia has plentiful coal reserves that are easily accessible, and this is the cheapest fuel for electric power generation and some heavy industries. Gas is more profitable to export into booming markets in East Asia than to sell domestically. Investment in renewables suffers from high up-front expenditure and long payback periods, which is a particular problem when investors feel uncertain about future laws and regulations in Indonesia.

More coal expansion is planned. The government’s current answer to the looming electricity supply crisis is a ‘crash program’ for expansion of base-load capacity through coal-fired power plants. The plan is to install 10,000 MW of new coal-fired generating capacity by 2009/10 (existing on-grid capacity is around 23,000 MW), using low-grade coal. This will effectively lock in new high-carbon infrastructure for many decades.

Rich countries are historically responsible for gases already in the atmosphere and can pay for action. But the bulk of the yearly increase comes from developing countries

Yet there are large opportunities to follow a lower-carbon path. They include more efficient, energy-saving equipment; greater use of gas rather than oil or coal; expansion of renewable energy sources like geothermal and hydropower and, more controversially, large-scale biofuels production.,Even nuclear power remains in the discussion for Indonesia despite safety and security concerns. The common feature of most of these options however is that they are more expensive than the high-emissions alternatives.

The way forward

Curbing Indonesia’s emissions must be part of an effective future global response. Yet Indonesia, like other developing countries, has much more pressing and immediate concerns that need scarce public resources. Reducing greenhouse emissions is a global public good; its benefits are dispersed over everyone on the planet and future generations.

The logical conclusion is that rich countries need to pay for greenhouse gas reduction measures in developing countries like Indonesia on a big scale. This is far from easy to achieve. Issues of international equity and incentives to free-ride on other countries’ efforts remain tricky.

But political will to find a solution is growing. The Kyoto Protocol approach could be broadened using a portfolio of different commitment options, and made more flexible to accommodate individual countries’ preferences and circumstances. The Bali climate conference must mark an important step, and Indonesia as the host is in a good position to help the process along. ii

Frank Jotzo (frank.jotzo@anu.edu.au) is a research fellow at the Research School of Pacific and Asian Studies, Australian National University. He specialises in the economics of climate change and climate policy.

Indonesia: Energy profile

[ Energy Publisher ]

Indonesia is the only Southeast Asian member of OPEC, although the country became a slight net oil importer in 2004.

Indonesia has the largest population in Southeast Asia and the fourth largest population in the world (behind China, India, and the United States). In 1962, Indonesia joined the Organization of the Petroleum Exporting Countries (OPEC) and became a net importer of oil in 2004 .

Oil

Indonesia’s oil production has declined in recent years. According to Oil & Gas Journal (OGJ), Indonesia had 4.3 billion barrels of proven oil reserves as of January 2007. Oil production in Indonesia has decreased steadily during the last decade, owing to disappointing exploration efforts and declining production at Indonesia’s large, mature oil fields.

Sector Organization

In October 2001, Indonesia’s oil sector experienced significant reforms with the passage of the new Oil and Gas Law No. 22/2001. The law forced state-owned oil company Pertamina to relinquish its role in granting new oil development licenses and limited the company’s monopoly in upstream activities. Pertamina’s regulatory and administrative functions were transferred to the new regulatory body, Badan Perlaksanaan Minyak Gas, or BP Migas. Pertamina was formed into the limited liability company PT Pertamina (Persero) by presidential decree in 2003, although it remains a state-owned entity. PT Pertamina is laying the groundwork for full privatization to take place at some point in the future.

Indonesia’s oil sector is dominated by several international oil companies (IOCs). The single largest oil producer is Chevron, which controls Caltex Pacific and Unocal’s former Indonesian assets. BP, ConocoPhillips, ExxonMobil, and Total are also significant oil producers in the country, with China’s state-owned companies PetroChina and China National Offshore Oil Corporation (CNOOC) also having a considerable presence.

The liberalization of Indonesia's downstream oil and gas sector has been under discussion for several years. Pertamina maintained its retail and distribution monopoly for petroleum products until July 2004, when the first licenses for retail sale of petroleum products were granted to BP and Petronas of Malaysia. However, Pertamina maintains a dominant position in Indonesia’s downstream sector, operating all eight of the country’s refineries. The government is still promising to open the sector to full competition, although progress has been slow to date.

Indonesia historically has maintained consumption subsidies for domestic retail fuel consumers, with products being sold at a discount from world market prices. After a series of modest increases in petroleum prices over the past few years, President Yudhoyono announced a sharp rollback of subsidies in September 2005. Prices of retail gasoline and diesel rose by an average of 125 percent as a result. Despite this one-time move, fuel consumption subsidies still take up a sizeable portion of government expenditures.

Exploration and Production

Indonesia’s largest oil producing fields are mature and declining in output. During 2006, Indonesian oil production averaged 1.1 million barrels per day (bbl/d), of which 81 percent, or 894,000 bbl/d, was crude oil. Indonesia’s total oil production has dropped by 32 percent since 1996, as many of the country’s largest oil fields continue to decline in output. Indonesia’s current OPEC crude oil output quota is set at 1.45 million bbl/d, well above the country’s production capacity. During 2006, Indonesia’s oil consumption reached 1.2 million bbl/d, making it a slight net importer of oil for the year.
Natural Gas

Natural gas production has increased in recent years in Indonesia, although the country is facing a declining global LNG market share.

According to OGJ, Indonesia had 97.8 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2007. Indonesia is the tenth largest holder of proven natural gas reserves in the world and the single largest in the Asia-Pacific region. According to the Indonesian government, more than 70 percent of the country’s natural gas reserves are located offshore, with the largest reserves found off Natuna Island, East Kalimantan, South Sumatra, and West Papua (also known as Irian Jaya).

Sector Organization

As with the oil sector, Indonesia’s natural gas sector underwent reforms with the passage of the Oil and Gas Law No. 22/2001. State-owned Pertamina was forced to relinquish its monopoly status in upstream natural gas projects, and BP Migas now holds primary regulatory authority in the sector. PT Pertamina, the limited liability corporation that was formed from its predecessor, remains an important player in Indonesia’s natural gas exploration and production activities. PT Pertamina and six major international companies dominate Indonesia’s natural gas industry, accounting for more than 90 percent of the country’s production. The six companies are: Total (estimated market share in 2004, 30 percent), ExxonMobil (17 percent), Vico (a BP-Eni joint venture, 11 percent), ConocoPhillips (11 percent), BP (6 percent), and Chevron (4 percent). Natural gas transmission and distribution activities are carried out by the state-owned utility Perusahaan Gas Negara (PGN).

Exploration and Production

In 2004, Indonesia produced 2.6 Tcf of natural gas while consuming 1.3 Tcf. Also in 2004, Indonesia exported about 1.2 Tcf of liquefied natural gas (LNG) to Japan, South Korea, and Taiwan. Historically, Indonesian natural gas production has been geared toward export markets, but the country has made an effort to shift natural gas toward domestic uses in recent years as a substitute for the country’s declining oil output. However, Indonesia’s limited natural gas transmission and distribution network remains an obstacle to further domestic consumption.

Indonesia’s two major LNG production plants, Arun and Bontang, have experienced declining production in recent years.

To help make up for this shortfall, Indonesia has vigorously engaged in natural gas exploration activities, as it strives to meet its long-term LNG contract obligations and also to satisfy increasing domestic demand. Several new projects are under development, the most high profile of which is the Tangguh LNG project in West Papua (see the LNG Section below for further details).

Pipelines
Domestic System

PGN operates more than 3,100 miles of natural gas distribution and transmission lines, comprising nine regional networks. The networks have limited interconnectivity, which has restrained further growth of domestic natural gas consumption. PGN has plans to build four additional domestic natural gas pipelines to improve the country’s natural gas network connectivity, known as the Integrated Gas Transportation System (IGTS). The IGTS is designed to eventually link the islands of Sumatra, Java, and Kalimantan via a 2,600-mile pipeline. The World Bank, Asian Development Bank, and PGN are jointly financing the project. So far, the planned interconnection is partially complete, and is scheduled to be fully operational in 2010 with a capacity to transport 2.2 Bcf/d of natural gas.

International Connections

Indonesia began exporting natural gas via pipeline in 2001, with the opening of the 400-mile, 325-million cubic feet per day (MMcf/d) subsea pipeline from West Natuna to Singapore. In August 2002, Indonesia began delivering 250 MMcf/d of piped natural gas to Malaysia’s Duyong platform. And in August 2003, a second natural gas connection to Singapore was opened when the South Sumatra-Singapore pipeline was completed. This line reached 350-MMcf/d maximum capacity during 2006 and will deliver natural gas to Singapore over a 20-year contract.

Indonesia has played a leading role in discussions of the proposed “Trans-ASEAN Gas Pipeline” (TAGP), which envisions the establishment of a transnational pipeline network linking the major natural gas producers and consumers in Southeast Asia. The TAGP concept was initially proposed in 1997 as part of ASEAN’s “Vision 2020” initiative. In July 2002, energy ministers from the ASEAN countries signed a memorandum of understanding to study the viability of the project, although much work remains to be completed to fully realize the project’s goals.

Liquefied Natural Gas

Media reports suggest that Indonesia was surpassed by Qatar in 2006 as the single largest exporter of LNG. Indonesia is a leading LNG exporter. Indonesia was the world’s largest exporter of LNG in 2005, although some reports suggest that the country was surpassed by Qatar sometime in 2006. During 2005, Indonesia exported 23 million tons (MMt, or 1,123 Bcf) of LNG, or about 16 percent of the world total.

Indonesia produces LNG from two terminals: the Bontang facility in Badak, East Kalimantan and the Arun plant in North Sumatra.

The Bontang LNG terminal was Indonesia’s first to begin commercial operations, shipping its first LNG exports in 1977. The eight-train Bontang plant is the largest LNG facility in the world, with a capacity to produce 21.6 MMt/y (1.1 Tcf/y). However, production has stood below full capacity in recent years, with 2004 output estimated at 19.6 MMt (955 Bcf) of LNG. The Bontang terminal is operated by PT Badak NGL Company, 55 percent owned by PT Pertamina, 20 percent by Vico (a BP-Eni joint venture), 10 percent by Total, and 15 percent by the Japan Indonesia LNG Company (JILCO). Recently, the Bontang plant has faced underproduction for a variety of reasons, which forced the Indonesian government to divert some natural gas supplies to domestic fertilizer companies. In 2005, Bontang LNG supply contracts were renegotiated so that more of the project’s output could supply domestic customers.

The Arun LNG facility is operated by PT Arun Natural Gas Liquefaction Company, which is 55 percent owned by PT Pertamina, 30 percent by ExxonMobil, and 15 percent by JILCO. Arun is a six-train facility with a total capacity to produce more than 10 MMt/y (487 Bcf/y) of LNG, although in 2004 production stood at 6.4 MMt (312 Bcf). ExxonMobil supplies LNG for the Arun plant from its nearby Aceh fields, although the company estimates that it has depleted 90 percent of the recoverable reserves. This shortfall also contributed to the government’s effort to redirect some natural gas production designated for export to domestic users. In 2005, this forced the Indonesian government to turn to spot LNG markets to meet its contractual obligations to foreign buyers.

Tangguh LNG Project

One project that holds promise for Indonesia's future in worldwide LNG markets is the BP-led Tangguh project in Papua province. The Tangguh fields contain 14.4 Tcf of proven natural gas reserves found onshore and offshore the Wiriagar and Berau blocks. The project received final approval from the government of Indonesia in March 2005, and is led by its operator BP (37.16 percent stake) and a consortium including the China National Offshore Oil Corporation (CNOOC, 16.96 percent), Mitsubishi (16.3 percent), Nippon Oil (12.23 percent), KG (10 percent), and LNG Japan (7.35 percent). The first LNG train is set to begin production in 2007, with the second due for completion by 2009. The project will initially supply 4.2 MMt/y (205 Bcf/y) of LNG, eventually reaching 8.4 MMt/y (410 Bcf/y) when both trains are producing. According to BP, the Tangguh LNG facility has already secured four long-term LNG sales contracts, including: the Fujian LNG project in China, K-Power in Korea, POSCO in Korea, and Sempra Energy in Mexico.

Indonesia’s two largest oil fields are Minas and Duri, which are operated by Chevron and located along the eastern coast in Sumatra. However, the Minas and Duri fields are mature and production at these locations has been on the decline. Various oil exploration projects are underway in Indonesia. However, to date, these projects have not brought sufficient new oil resources onstream to offset the declining production levels at older fields.

One of Indonesia’s last undeveloped oil fields is the Cepu block, located in East and Central Java. ExxonMobil’s local subsidiary discovered 250 million barrels of proven oil reserves in the Cepu Contract Area in 2001, and today the company estimates the area could hold up to 600 million barrels of recoverable oil reserves. ExxonMobil hesitated to develop the promising oil resource, however, because the company’s contract for the area was set to expire in 2010. After several years of negotiations, in March 2006 ExxonMobil and PT Pertamina signed a joint operation agreement (JOA) for the Cepu field. Each company will have a 45 percent stake in the project, with the remaining 10 percent held by provincial governments in East and Central Java. The project is scheduled to begin production in 2008, with peak production expected to reach 180,000 bbl/d.

BP Migas and the Indonesian government have introduced policies aimed at increasing investment in the country’s upstream sector. BP Migas set up various incentive programs for firms to develop marginal oil resources throughout the country that would not otherwise be attractive to international companies. In October 2006, the government waived import taxes on capital goods for oil and natural gas exploration and production. BP Migas has also held several competitive bidding rounds for new upstream projects throughout Indonesia. During 2006, BP Migas concluded its fifth round of acreage offerings in which it awarded dozens of new exploration and production licenses to companies. During the fifth bidding round, a handful of exploration blocks were awarded to international oil majors, such as ExxonMobil and ConocoPhillips, although the majority of tenders were won by smaller Indonesian firms.

Downstream/Refining

According to OGJ, as of January 2007, Indonesia had 992,745 bbl/d of refining capacity at 8 facilities, all of which are operated by PT Pertamina. The largest refineries are the 348,000-bbl/d Cilicap facility in Central Java, the 241,000-bbl/d Balikpapan plant in Kalimantan, and the 125,000-bbl/d Balongan refinery in West Java. PT Pertamina announced in August 2006 that it plans to spend $10 to $11 billion on boosting Indonesia’s downstream sector over the next 5 years. As part of this effort, there have been various proposals to upgrade existing refineries or build new facilities, as well as to expand the country’s transmission, distribution, and marketing network. However, of the numerous proposals that have been offered, the only project that has moved forward significantly is the planned refinery at Pare-Pare. Local firm PT Intanjaya Agromegah Abadi, with financial backing from Saudi investors and U.S.-based Inter Global Technologies, began construction on the facility in February 2006, which is slated to be Indonesia’s first privately-owned refinery. The facility will have a nameplate capacity of 300,000 bbl/d and is expected to be completed in 2010.

Various other refinery projects have also been proposed. In December 2006, PT Pertamina and China’s Sinopec completed a feasibility study of a proposed 200,000-bbl/d refinery in Tuban, East Java. While a Memorandum of Understanding (MOU) was reached between the two companies in 2005, there are no firm plans to begin construction on the proposed project. PT Elnusa, a subsidiary of PT Pertamina, has studied the possibility of building a 300,000-bbl/d refinery in a consortium with Venezuela’s Petroleos de Venezuela SA (PdVSA), Iran’s National Iranian Oil Refinery and Distribution Company (NIORDC), and Japanese investors.

Coal

Indonesia’s coal production has increased in recent years, and today the country is one of the world’s chief coal exporters. According to EIA estimates, Indonesia has 5.5 billion short tons of recoverable coal reserves, of which 85 percent is lignite and sub-bituminous. Roughly two-thirds of the country’s coal reserves are located in Sumatra, with the balance located in Kalimantan, West Java, and Sulawesi. In 2004, Indonesia produced 142 million short tons (MMst) of coal, up about 68 percent since 2000. Coal consumption has remained relatively flat in Indonesia, with 2004 consumption at 24 MMst. According to EIA statistics, Indonesia was the second largest net exporter of coal in the world in 2004, with 118 MMst of apparent net exports.

Indonesia adopted a new National Coal Policy in January 2004, which seeks to promote the development of the country’s coal resources to meet domestic requirements and to increase coal exports in the long-run.

However, a report from the U.S. Embassy in Jakarta suggests that the growth in coal production in Indonesia has been export-oriented, owing to the higher international price fetched by coal producers. Therefore, Indonesian coal exports may be vulnerable to outside market factors. Domestic coal demand has remained rather flat, despite government efforts to substitute relatively cheaper coal for oil or natural gas.

Electricity

Indonesia’s power sector faces shortages on electricity due to underinvestment in new generating capacity. In 2004, Indonesia had 25 gigawatts (GW) of installed electricity generating capacity. During 2004, Indonesia generated 112.6 billion kilowatthours (Bkwh) of electricity, of which 86 percent came from conventional thermal sources (oil, natural gas, and coal), 8 percent from hydroelectric sources, and 5 percent from geothermal and other renewable sources. In 2004, Indonesia consumed 104.7 Bkwh of electric power, showing net electricity exports during the year.

Sector Organization

Indonesia’s power generation sector is dominated by the state-owned electric utility PT PLN (Persero), formerly known as Perusahaan Listrik Negara. PT PLN operates 45 power plants, or roughly two-thirds of the country’s generating capacity. Indonesia’s electricity sector faces severe underinvestment, and the country’s energy officials have set out on a program to expand generation capacity. The plan, known as the “10,000 MW Acceleration Program”, aims to add 10,000 MW of new capacity by 2010.

In September 2002, the government passed new legislation aimed at strengthening regulatory guidance in the power sector and promoting new investment in power projects.

According to the 2002 Electricity Law, certain markets for power generation will be open for competition from 2007. Retail market competition is scheduled for 2008, when power producers will be able to sell directly to their customers rather than through PT PLN. The 2002 legislation also established a new regulatory body, the Power Market Supervisory Agency, and created incentives for rural electrification programs. However, little progress has been made on these proposals, mostly because foreign and private companies have shown little interest in investing in Indonesia’s electricity sector. Some of the previously-cancelled IPP projects have been revived, but many of them remain in a stalemate over payment disputes.

One of the major obstacles to increasing Indonesia’s power generating capacity is pricing. The government sets the price at which PT PLN sells electricity in the country, and since the Asian Financial Crisis, it has often had to sell electricity at less than the cost of production. PT PLN’s financial difficulties, coupled with its inability to increase power prices, have prevented the company from investing in new infrastructure projects to build up capacity.

Conventional Thermal

The Indonesian government has stated that it would like to promote natural gas-fired and coal-fired power stations so that the country can utilize its domestic resource base and shift away from oil-fired power generation. PT PLN has prepared numerous proposals for new power plant projects, which it will offer to investors as part of its 10,000 MW Acceleration Program. However, foreign investors have largely avoided the Indonesian power sector in recent years due to the poor financial condition of PT PLN and the uncertain regulatory climate in the electricity sector.

Hydroelectric

In 2004, Indonesia generated 9.4 Bkwh of electricity from hydroelectric sources, representing about 8 percent of the country’s total generation. Industry reports suggest that Indonesia holds vast hydropower potential, but that the country has yet to embark on the same sorts of large hydroelectric facilities as seen elsewhere in the region. Since hydropower plants require huge upfront capital investments, it is unlikely that PT PLN or other companies in Indonesia will have the incentive to invest in hydroelectric projects in the near term.

Geothermal and Other Renewables

According to EIA data, Indonesia generated 6 Bkwh of electricity from geothermal and other renewable sources in 2004, making up about 5 percent of the country’s total electricity supply. According to outside sources, Indonesia today has more than 800 MW of geothermal capacity, making it the fourth largest producer of geothermal power in the world behind the U.S., Philippines, and Mexico. The Indonesian government estimates that the country holds large untapped geothermal resources, with the potential to supply up to 21 GW of additional generating capacity. However, several plans for large-scale geothermal development projects were scrapped when Indonesia faced economic turmoil during the Asian Financial Crisis.

Environment

Indonesia's per capita carbon dioxide emissions remain relatively low, but the large size of the country (it has the fourth largest population in the world) makes it a considerable emitter of carbon dioxide in the region. Indonesia recently completed its phase-out of leaded gasoline, with a complete ban having come into force in 2005.

Profile
Country Overview
Location Southeastern Asia, archipelago between the Indian Ocean and the Pacific Ocean
Independence 17 August 1945 (independence proclaimed); 27 December 1949 (Netherlands recognizes Indonesian independence)
Population (2006E) 245,452,739

Economic Overview
Currency/Exchange Rate (22 December 2006) 1 USD = 9,079.77 Indonesian Rupiahs (IDR)
Inflation Rate (2005E) 10.5%
Gross Domestic Product (GDP, 2005E) $281.1 billion
Real GDP Growth Rate (2005E) 5.6%
Unemployment Rate (2005E) 11.8%
External Debt (2005E) $135 billion
Exports (2005E) $86.2 billion
Exports - Commodities oil and gas, electrical appliances, plywood, textiles, rubber
Exports - Partners (2005E) Japan 21.1%, US 11.5%, Singapore 9.2%, South Korea 8.3%, China 7.8%, Malaysia 4%
Imports (2005E) $63.9 billion
Imports - Commodities machinery and equipment, chemicals, fuels, foodstuffs
Imports - Partners (2005E) Singapore 16.4%, Japan 12%, China 10.1%, US 6.7%, Thailand 6%, South Korea 5%, Saudi Arabia 4.7%, Australia 4.4%
Current Account Balance (2005E) $0.9 billion

Energy Overview
Proven Oil Reserves (January 1, 2006E) 4.3 billion barrels
Oil Production (2006E) 1,105 thousand barrels per day, of which 81% was crude oil.
Oil Consumption (2006E) 1,150 thousand barrels per day
Crude Oil Distillation Capacity (2006E) 992,700 barrels per day
Proven Natural Gas Reserves (January 1, 2006E) 97.8 trillion cubic feet
Natural Gas Production (2004E) 2.7 trillion cubic feet
Natural Gas Consumption (2004E) 1.3 trillion cubic feet
Recoverable Coal Reserves (2003E) 5,476.3 million short tons
Coal Production (2004E) 142.3 million short tons
Coal Consumption (2004E) 23.9 million short tons
Electricity Installed Capacity (2004E) 25 gigawatts
Electricity Production (2004E) 112.6 billion kilowatt hours
Electricity Consumption (2004E) 104.7 billion kilowatt hours
Total Energy Consumption (2004E) 4.7 quadrillion Btus*, of which Oil (53%), Natural Gas (30%), Coal (12%), Other Renewables (3%), Hydroelectricity (2%), Nuclear (0%)
Total Per Capita Energy Consumption ((Million Btu)E) 19.7 million Btus
Energy Intensity (2004E) 5,377.4 Btu per $2000-PPP**

Environmental Overview
Energy-Related Carbon Dioxide Emissions (2004E) 307.7 million metric tons, of which Oil (56%), Natural Gas (24%), Coal (16%)
Per-Capita, Energy-Related Carbon Dioxide Emissions ((Metric Tons of Carbon Dioxide)E) 1.3 metric tons
Carbon Dioxide Intensity (2004E) 0.4 Metric tons per thousand $2000-PPP**
Environmental Issues deforestation; water pollution from industrial wastes, sewage; air pollution in urban areas; smoke and haze from forest fires
Major Environmental Agreements party to: Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands signed, but not ratified: Marine Life Conservation

Oil and Gas Industry
Organization Mixed. State-owned PT Pertamina maintains an important role in the oil and gas sectors, while production is dominated by international oil majors.
Foreign Company Involvement BP, Chevron, CNOOC, ConocoPhillips, ExxonMobil, Inpex, KG, Mitsubishi, Nippon Oil, PetroChina, Petronas, Total, Vico
Major Oil Fields Duri, Minas, Belida, Ardjuna, Arun, KG/KRA, Widuri, Nilam, Attaka
Major Natural Gas Fields Sumatra: Arun, Alur Siwah, Kuala Langsa, Musi, South Lho Sukon, Wampu. East Kalimantan: Attaka, Badak, Bekapai, Handil, Mutiara, Nilam, Semberah, Tunu. Natuna Sea: Natuna. Java: Pagerungan, Terang/Sirasun. Irian Jaya: Tangguh
Major Refineries (capacity, bbl/d) Cilicap, Central Java (348,000); Balikpapan, Kalimantan (240,920); Balongan (125,000); Dumai, Central Sumatra (114,000); Musi, South Sumatra (109,155).

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP figures from OECD estimates based on purchasing power parity (PPP) exchange rates.

Source: EIA

BioPertamax dan Biosolar Mulai Dipasarkan di Bali

[ ESDM.go.id ]

Untuk pertama kali produk BioPertamax dan Biosolar mulai dipasarkan di luar Jawa. Lokasi yang dipilih adalah Bali. Peluncuran produk BBM PT Pertamina ini dilakukan langsung oleh Presiden Susilo Bambang Yudhoyono, hari Selasa (13/11).

Acara peluncuran dilakukan di lokasi SPBU No. 54.805.11, Jl. By Pass Ida Bagus Mantra, desa Ketewel, Gianyar. Hadir pada peluncuran tersebut antara lain Menteri ESDM Purnomo Yusgiantoro, Menteri Negara BUMN Sofyan Djalil dan Direktur Utama PT Pertamina Ari H Soemarno.

Menurut Menteri ESDM Purnomo Yusgiantoro peluncuran Bio Pertamax dan Biosolar ini memang dalam rangka menyambut Bali sebagai tuan rumah Konferensi Puncak Perubahan Iklim Perserikatan Bangsa-Bangsa COP 13, awal bulan Desember 2007. Dijadwalkan acara akan diikuti oleh delegasi dari 180 negara.

''Inilah kesempatan Indonesia untuk menunjukkan keseriusannya kepada dunia dalam menyediakan dan menggunakan bahan bakar ramah lingkungan,'' ujar Menteri ESDM Purnomo Yusgiantoro. Selain itu juga diungkapkan bahwa langkah ini juga merupakan bagian dari program nasional untuk mempercepat penggunaan bahan nabati.

New company offers promise of biofuel boom

[ theage.com.au ]

A NEW Australian company hopes to tap global demand for biofuels with a $10 million initial public offering this week.

Jatoil's main commodity will be Jatropha oil — derived from a low-cost, high-yielding, fast-growing, plant of the same name it plans to grow and sell overseas.

It will develop its supplies with partners initially in Asia to supply Asia and Europe.

Jatoil will offer up to 35 million shares at 20¢ each to raise up $7 million and may accept oversubscriptions for up to 15 million shares at 20¢ each to raise a further $3 million. The maximum raising of up to $10 million comes in addition to its cash reserves of $5 million.

"We have already entered an agreement to participate in substantial Jatropha projects in Indonesia and we are initially exploring additional opportunities in Sri Lanka and South-East Asia," executive chairman Mike Taverner said.

The offer opens on Friday and closes at the end of the month. It is due to list on the sharemarket on December 12.

■ Mesbon China Nylon hopes Australian investors will weave themselves into its expansion plans through a $20 million public offering. The Chinese yarn-spinning company will issue up to 40 million fully-paid ordinary shares at 50¢ each to raise up to $20 million.

Executive chairman Zhehao Shen said the timing was right "particularly so if local investors can trade China-focused stock on the local Australian bourse".

Auspine chairman Paul Teisseire has been appointed a Mesbon non-executive director.

The offer opens on November 19 and is due to close on December 7. It is due to list on December 18. AAP

Indonesian fuel subsidy soars amid oil price rise

[ ChinaView ]

JAKARTA, Nov. 5 (Xinhua) -- The fuel subsidy in the Indonesian state budget is estimated to hit 90 trillion rupiah this year (about 9.8 billion U.S. dollars) against the initial projection of 55 trillion (6 billion dollars) due to soaring oil prices, an official said Monday.

Indonesia must cope with the global oil shocks by either increasing domestic fuel prices or launching energy conservation campaign.

"But the government would not go to the first option (price hike) because of its potential massive social effects, so we choose the second option," Minister of Energy and Mineral resources Purnomo Yusgiantoro said in a seminar on renewable energy development here.

Purnomo said the average Indonesian crude oil price already hit72 dollars per barrel, far above the projected 60 dollars per barrel in the state budget.

The government allocates subsidies for transport fuel products but allows market pricing for high-octane fuel products, fuel for industrial uses and for export sales.

The subsidized gasoline, for instance, sells at a mere 4,500 rupiah (49 cents) a liter.

Subsidized fuel consumption in Southeast Asia's only OPEC member is predicted to reach 38.2 million kiloliters this year, exceeding the government's quota of 36.1 million kiloliters.

In nine months to September, fuel consumption already reached 28.5 million kiloliters, comprising gasoline 13.09 million kiloliters, diesel fuel 8.01 million kiloliters and kerosene 7.4 million kiloliters, according to data from the Oil and Gas Executive Body (BP Migas).