Despite a slow first quarter, Indonesia’s LNG consumption keeps rising from 1.1 million tonnes in the second quarter and appears to be well-cushioned against the impact of Covid-19. Reduced pipeline gas and low spot prices were likely to have supported Indonesia’s LNG demand.
Gas gains ground against coal
“Cost of generation and meeting growing electricity demand is key in Indonesia,” said Wood Mackenzie’s principal analyst Lucy Cullen. “While coal will always be cheaper, it would be interesting to see in the longer term whether lower gas prices could encourage greater role of gas in the energy mix, and eventually accelerate the country’s energy transition.”
Regulations, recently introduced by the government, are aimed at lowering domestic gas price to $6 per million British thermal unit (mmbtu) for seven key industries and the electricity sector. These measures are meant to improve industrial competitiveness, especially for exports, and create multiplier effects.
LNG is expected to make up a growing a share of Indonesia’s energy mix in the years ahead, offering opportunities for infrastructure development given that imports will be vital to balance the country’s declining domestic gas production.
“The story of Indonesia is consistent with Asia’s outlook at large,” Ms Cullen commented. “The region’s LNG imports will reach 250 Mt this year, a 2.5% increase compared to last year, and could hit 315 Mt in 2025.”
The share natural gas of Indonesia’s total primary energy demand has been about 12-13% over the past few years. By 2040, Asia is expected to account for 40% of global LNG consumption with Indonesia and its Southeast Asian neighbours being key engines of this growth.
Tangguh LNG Phase-2 delayed
“While Tangguh LNG Phase 1 showed strong performance with 117 cargoes delivered last year, the Phase 2 expansion is expected to face delays,” Ms Cullen suggested.
In 2019, BP announced a first delay by a year after the LNG EPC lead-contractor Chiyoda signalled difficulties completing the project on schedule. The project also faced challenges moving labour and materials to the remote location of the plant, while tsunami activity in Eastern Indonesia added to the amount of site preparation work required.
The coronavirus is expected to trigger additional delays with the contractor declaring force majeure in March 2020. Wood Mackenzie expects plant start-up to be delayed to Q2-2022.