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Is Indonesia’s coal curb a prelude to Liquefied Natural Gas migration?

President Joko Widodo has officially revoked thousands of mining and plantation permits, however…

One cannot help but question if the Indonesian government is playing high-stakes poker with this drastic step; putting one of its largest source of income at risk. On the other hand, should Environmental, Social, and Governance be added to the mix, it might actually be a right move.

Taking a deeper look
Coal is one of Indonesia’s biggest sources of income and exported 300 million mt in 2021, with China, India, Japan and South Korea being the largest customers. The current ban translates to lost revenue estimated at US$40.4 billion for January 2022. The country’s Ministry of Energy and Mineral Resources reportedly set the thermal coal reference price, known as Harga Batubara Acuan (HBA) at US$158.50/mt. Nevertheless, the drawback of coal is still greenhouse gas (GHG) emissions. With its notoriously-high GHG emissions and the noise made at COP26 Summit last year, the industry is hard-pressed to adopt cleaner fuel to address climate issues.

The next highly-recommended fuel is Liquefied Natural Gas (LNG). Data from United States’ Energy Information Administration (EIA) showed Indonesia exported approximately 593 billion cubic feet (Bcf) of LNG, up from 582 Bcf in 2019. For customers like South Korea, Japan, and China, Indonesia is mostly a regional supplier. It has unfortunately lost market share the last several years to other LNG producing countries including Qatar, Malaysia, Australia, and the United States. Indonesia was the world’s 7th-largest exporter of LNG in 2020. The country currently has three liquefaction plants with a combined liquefaction capacity of 1 trillion cubic feet (Tcf) per year.

It is plausible that the republic may be leveraging the ban to gradually transit to LNG for ESG’s sake, if not attempting to gain lost market share from competitors. However, it does not change the fact miners are now neck-deep in trouble with their revoked permits for failing to comply. That leaves miners with excess inventory they could not sell. The only hope is the authorities grant provisions for non-licensed miners to sell their inventory locally at lower prices – an extension of domestic market obligation (DMO).

Marine Online News Team
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