Optimization of the risk-based small-scale LNG supply chain in the Indonesian archipelago

Abstract

The electricity supply in Indonesia is considered inefficient, as indicated by the increase in the Cost of Generation Provision (CGP) in the 2016–2021 period. Indications of high supply chain risks are not commensurate with the low demand for LNG. Nevertheless, every power plant on small islands must be served by minimizing costs. This study aims to develop a risk-based small-scale supply chain model to distribute LNG in archipelagic areas by minimizing infrastructure costs, including investment and operations. This paper formulates a risk-based small-scale LNG (SS-LNG) model with milk runs, which are rarely applied in LNG supply chains, thus impacting cost efficiency and the sustainability of LNG supply in Indonesia. The simulation was carried out using the vehicle routing problem with milk run (VRPMR) method. The optimization results show that the 2-vessel scheme is an optimal and efficient risk-based SS-LNG supply chain model. However, it appears that changing the scheme from 1 to 2 vessels generally increases the infrastructure tariff by 3%, or USD 0.11 per MMBTU. This risk-based supply chain model is able to ensure a fuel cost efficiency of 27% for power plants.