Natural gas development in Indonesia

Abstract

Indonesia is a major exporter of liquefied natural gas (LNG). In this paper, we describe the growth of the natural gas industry in Indonesia, both for export and for domestic markets. With regard to gas exports, important decisions had to be taken at an early stage. These included the choice of LNG over methanol as the export medium, the selection of an appropriate market (Japan), the decision to place all gas exports in the hands of a single, public entity (Pertamina), and the choice between FOB and CIF sales. Pricing was also a critical issue. Since 1977, when LNG exports began to flow, domestic gas utilization has become an increasingly important goal in Indonesia. The rapid growth of local energy consumption and the possibility of using gas to free up additional oil for export have been important motivating factors. For the first time, natural gas became an exploration target rather than a by-product of oil-exploration efforts. Moreover, local gas-based industries began to expand in the region surrounding the LNG export facilities at Arun. Also, after 1977, the domestic price of natural gas was increased in order to provide a greater incentive for gas exploration and development. Indonesia has considerable potential for future gas discoveries.