May 25 10 min
Electricity prices in the eastern part of Indonesia are up to five times higher than in the central part of the country, forcing the Government to heavily subsidizes energy costs.
Natural gas offers a transition to an environmentally cleaner future while satisfying the increasing demand for energy within Indonesia and the region. Indonesia has several substantial LNG liquefaction export terminals that potentially offer a solution to supplying the nation's gas needs.
A major roadblock in supplying LNG to the dispersed island nation, is the very high cost to build LNGC receiving terminals with associated mooring infrastructure, including dredging. Subsequently, the majority of small to medium scale projects focused on LNG import do not survive past the concept or feasibility stage.
Commercially it is well appreciated that market demand for LNG has been growing and will contribute significantly to Indonesia's national energy mix. The market is rapidly emerging for small to medium scale LNG importation; however, how can this be exploited?
The solution may lie with floating LNG receiving technologies - now being commercialized and implemented reducing infrastructure costs to commercially acceptable levels.
An example of such technology are FSRU and Connect LNG's Jettyless floating Universal Transfer System® that removes the current roadblock of high LNG receiving infrastructure costs. The UTS is further described later in this article.
Countries going through socio-economic growth, increasing living standards, and technological change often have the associated challenges of sustainable governance, long term infrastructure planning, and development to improve the quality of life for their population without placing an unfair burden on future generations. The decision to make the conversion from coal, fuel oil or diesel to LNG for power generation, also relies on the LNG buyer obtaining reliable supply at a competitive price and the seller having security in payment and understanding the buyers' demand for LNG.
Indonesia is made up of many dispersed islands, separated by deep seas. As a result, it would be costly to establish integrated regional infrastructure, such as pipelines and power grids, leaving many of the islands without clean and cheap energy.
Figure 1: Map of Indonesia
Across the Indonesian archipelago, electricity is mainly generated from coal, diesel, or gas-fired power plants. While coal remains the most widely used, fossil fuels contribute significantly to the production of high Carbon Dioxide (CO2) and air pollution levels. Furthermore, diesel have typically been one of the most expensive fuels in Indonesia, which makes many of the existing aging plants costly to operate and maintain.
The coal-fired power plants in Indonesia emit several hundred thousand tonnes of pollutants annually such as mercury, lead, cadmium, and toxic particulate matters (PM2,5). A report from 2015, based on research done at Harvard University, states that coal-fired power in Indonesia causes about 6500 premature deaths, and each 1000MW of coal-fired capacity is estimated to result in another 600 deaths annually due to chronic diseases in elderly and respiratory infections in children.
Utilizing LNG for power generation would eliminate the emissions of Nitrogen Oxides, SOx, and fine particles, enable a 29% reduction in CO2 emissions when compared to standard fuel oil and 37% when compared to coal.
In the eastern regions, electricity prices can be up to five times higher than in the central parts of the country, such as Java and Bali, as shown in Figure 2. Indonesia provides some of the world's most extensive subsidies for internal electricity use. Electricity prices have been set at low levels, with the Government of Indonesia (GOI) making transfers to Indonesia's electricity utility, Perusahaan Listrik Negara (PLN), to cover losses.
In an ambitious reform program, since 2013, Indonesia has taken significant strides to reduce the subsidy bill. The reforms have involved raising electricity prices to levels that reflect costs.
However, The Ministry of Energy and Mineral resources, and the House of Representatives, recently agreed to further increase the electricity subsidies in the 2020 state expenditure budget to Rp62,21 Trillion (or USD 3,98 Billion in the exchange rate of USD1 = Rp15590,05 April 22, 2020), an increase of more than 7% from the previous year.
Figure 2: Difference in electricity prices on various Indonesian islands (Source: Afianto, 2013).
Indonesia is currently facing the challenges of sustainable development and the need for clean and affordable energy while planning to significantly reduce the Government's subsidy burden over time. Power generation projects are aiming to meet the increasing power demand while transitioning over to LNG, as well as renewable sources to phase out diesel and coal, thereby reducing health hazards associated with the production of CO2, Sulphur Dioxide & Nitrogen Oxides produced by aging power plants.
Moreover, solutions enabling natural gas for power generation has been investigated ever since an extensive PLN-financed study suggested the promising potential of LNG back in 2010. Since then, significant progress has been made, most recently exemplified by PLN signing an initial 20-year gas purchasing deal with Pertamina in February this year. Taking on 167 billion British thermal units (Btu) of gas a day (1,237Mtpa), PLN is planning to reduce its diesel consumption with more than 60% within two years. PGN (a subsidy of Pertamina) is committed to spending USD 2,5 billion on the development of LNG receiving terminals and distribution facilities. The LNG will be used to fuel 52 power plants with a combined capacity of 1870MW. The power plants will be modified to run on natural gas, starting with five power plants of 430MW in combined capacity this year.
An efficient transition is crucial as the country is under enormous economic growth pressure. By 2030, Indonesia is projected to take over Germany's place as the 7th largest economy in the world. In order to meet both their own and UN’s Developmental Goals, the economy needs to grow sustainably; availability of electricity for the industry and consumers should follow.
The Bali FSRU was seen as a ground-breaking initiative by the state-owned electricity company PT Perusahaan Listrik Negara (PLN). It was recognized as a solution and a model for future power generation developments in the region, offering several positive steps towards eliminating the Government's fuel subsidy, lowering CO2 output, and providing a cleaner environment.
With the infrastructure and technology already available today, the paradigm shifts towards flexible LNG delivery solutions is taking shape, as evident in Bali and other locations. Small to medium scale floating infrastructure is paving the way for solutions that can satisfy continuous and Peak Shaving demands.
Figure 3: LNG Powered vs. Coal fired power plant. A traditional power plant can be modified to generate power from LNG, reducing GHG emissions.
Figure 4: Overview over Gas/ LNG overview in Indonesia (Source: PLN)
Small to medium scale land-based terminals, whether constructed for receiving an LNGC or to accommodate a long term berth for an FSRU, have the inherent disadvantages of high construction and dredging costs. These, combined with long delays often associated with obtaining permits and environmental approvals, all culminate in long project lead times.
The concept of constructing small to medium scale receiving terminals seems the right solution for bringing energy to isolated cities and regions or when a transition to LNG is being sought. However, the associated cost often proves financially non-viable and often regarded as a roadblock to development. Floating solutions, in many cases, are being considered as an alternative to land-based fixed receiving terminals and have emerged into the mainstream, offering greater flexibility, reduced cost, time, and significantly less impact on the maritime environment.
Dredging is usually required to remove unwanted deposits in water pathways, which alters the existing soil composition on which much of the life undersea is dependent upon to survive. Moreover, the new soil composition may cause the creation and spread of harmful organisms in addition to existing contaminations previously being stored in the soil.
The jettyless solution from Connect LNG called the Universal Transfer System UTS® that has been developed together with Naturgy Energy Group, does not require a land-based jetty or the associated loading arms. It may also negate the need for a large-scale FSRU altogether by the alternative onshore or near- shore storage and re-gas facilities, which are now almost "off the shelf" in modular form.
Consider an LNGC moored to a conventional spread mooring, offshore in a water depth no greater than what it requires to accommodate the vessel's draft itself; neither a jetty nor dredging is required. Consequently, environmental concerns and permitting issues are greatly simplified by the UTS solution. The UTS platform, floating cryogenic hoses, and control systems being constructed at an offsite yard significantly reduce delays associated with site-based construction, adding another vital element to achieving a fast track solution.
Compared with conventional fixed jetty infrastructure, the UTS offers a substantially lower capital cost solution and a significantly reduced timeline to first gas. The UTS may also provide a solution to other types of LNG loading, including bunkering. It is also interesting to note that many types of liquids, chemicals, or even bulk materials can be loaded using the UTS.
The concept of bringing LNG to Indonesia, jettyless, is hence introduced by Connect LNG, also combined with LNG from Naturgy Energy Group. This turn-key solution, where import infrastructure, whether an onshore terminal, Floating Storage Unit, or barge, can be put in place to provide a simple PPA structure whereby the jettyless UTS technology is an integral part of the solution. The scope for this joint development offers the UTS solution, technical support, and the possibility of a flexible LNG supply.
Figure 5: The jettyless UTS is a means to transfer LNG from point A to B, and can be combined with various types of LNG terminals (floating and non- floating). The system can be combined with LNG from Naturgy Energy Group for the Indonesian Market.
Figure 6: Connect LNG’s patented UTS©solution,Copyright developed together with Naturgy Energy Group
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