LNG in World Markets Featured Article

Indonesian state-run power utility PLN is eyeing long-term LNG supply and has reached out to multiple suppliers since early this year for tentative discussions. The firm, however, faces obstacles that include difficulties in obtaining an LNG import license, uncertainty over cost passthroughs to downstream markets, and other political and commercial issues.

PLN is seeking long-term LNG for its increased gas-fired power generation capacity. It plans to add some 20 GW of gas-fired power capacity by 2040, as part of energy transition efforts to phase out coal generation. The utility will supply LNG to the 1.8 GW Jawa-1 LNG-to-power facility in Cilamaya, West Java, where it has a 25-year power purchase agreement from 2021 to 2046. The project started up in 2021 and achieved commercial operations in March 2024.

More LNG could also be required for PLN’s proposed small-scale floating storage and regasification
unit (FSRU) projects across eastern Indonesia. It signed in March a 20-year deal with Philippine firm Atlantic Gulf & Pacific to co develop, own and operate LNG receiving infrastructure in that region, which includes an FSRU, an LNG carrier and break-bulk facilities.

PLN’s LNG demand is estimated at around 54-58 cargoes a year from 2024 to 2029, sources said, with some 22 cargoes marked for Jawa-1 alone. The remaining shipments will go to the Nusantara Regas, Bali and Arun terminals. Cargo size is assumed at around 56,000 tons, as smaller 125,000 m3 LNG ships are more commonly used within Indonesia.

The requirements can be satisfied, for now, via cargoes allocated by energy regulator SKK Migas from Indonesia’s Tangguh and Bontang LNG plants, sources said. A shortfall, however, could emerge in a few years, as domestic pipeline gas production falls amid increased demand.

PLN wants more independence in securing gas and LNG feedstock and is heard to be seeking to reduce its supply allocations from Tangguh and Bontang, by renewing its sale and purchase agreements with plant operators Pertamina and BP Tangguh in smaller quantities and shorter tenors.

The Indonesian utility will face hurdles in long-term LNG procurement.

PLN has a license to trade LNG but has yet to secure a permit for long-term imports. SKK Migas is unlikely to issue such long-term licenses if the contract price is not low enough – which can be tough to get amid current LNG market volatility. Domestic gas prices are capped at $6-$7/MMBtu for key industries and the power generation sector, based on separate decrees from Indonesia’s energy and mineral resources ministry.

It could also be politically risky to grant import licenses when significant gas production is still marked for LNG and pipeline gas exports, sources said. Indonesia is also keen to reduce its trade deficit for oil and gas, which remained at over $2 billion as of March 2024, meaning it will try to cap imports. Ongoing probes over improper procedures related to energy contracting may also deter the issuing of LNG import licenses.

Indonesian LNG import approvals are for now mostly given on a short-term basis and reviewed annually, sources said, suggesting spot purchases are possible if prices are low. There are also concerns whether international LNG suppliers can offer the operational flexibility that PLN may require, sources said. The utility can secure domestic cargoes from Pertamina and BP Tangguh on short notice to meet downstream requirements, if the LNG suppliers have uncommitted capacity, but global sellers are more likely to stick to planned annual delivery programs.

Indonesian LNG demand projected to rise

LNG demand is set to increase in Indonesia. Local gas production is declining on depleting reserves, while gas demand is expected to be propped up by the transition away from coal and oil, with Indonesia targeting net-zero carbon emissions by 2060 or earlier.

Indonesia’s LNG demand could rise from 4.8 MMt (around 86 cargoes, assuming each at 56,000 tons) in 2023 to 10.2 MMt in 2030 and 12.4 MMt in 2034, according to Poten estimates. At this rate, the country is expected to gradually shift from a net LNG exporter to net importer by around 2035-2039 – and this will be accelerated if the development of key gas discoveries is delayed.

Besides PLN, other key LNG importers include state-run energy firm Pertamina and gas distributor PGN. PGN is technically a sub holding company of Pertamina following a merger in 2018, but the firms keep their LNG portfolios separate for now.

Talks restarted in May on merging the portfolios, with completion possibly in 1H 2025. Pertamina will hand over its LNG portfolio and operations to one of its sub-holding companies, but it is unclear if it would be PGN or another existing/ new entity.

Pertamina has term LNG contracts with France’s TotalEnergies, Australia’s Woodside and the US’s Cheniere for Corpus Christi volumes. It opted to cancel its 1 MMt/y 20-year deal with Mozambique LNG, after invoking a force majeure clause in the contract. PGN’s portfolio includes some supply from Malaysia’s Bintulu LNG complex, via Petronas, sources said. Both firms have allocations from Tangguh and Bontang too, but these must be supplied to Indonesian terminals.

PGN is also seeking mid-term supply via a tender. It wants around eight standard-sized cargoes a year for three years starting January 2025 and is requesting delivered ex-ship (DES) terms. PGN is seeking Japan DES, suggesting the cargoes will be delivered to a short position there. Offers are due by Aug. 1.

Indonesia LNG Regasification Terminals