Optimization on long term supply allocation of Indonesian coal to domestic market

Abstract

Indonesian coal production and consumption are expected to increase within the foreseeable period. The coal production is estimated to reach its peak in 2026 and subsequently will be decreased. Meanwhile the consumption will continually increase. The coal production that is greater than the domestic coal consumption raises a problem of resource allocation in Indonesian energy sector. In this study Indonesian coal resource allocation within the foreseeable period of 2014–2030 is solved using linear programming method. Linear programming optimizes the coal resource allocation by minimizing logistic cost which consist of coal purchasing cost and transportation cost from producer’s transshipment to consumers. The optimization results of resource allocation optimization indicate a change of Indonesian coal suppliers in the domestic market with respect to time to reach the minimum logistic cost. Sensitivity analysis indicates that the pattern of resource allocation will be more affected by coal purchasing cost than transportation cost. Also, the existence of the stock will not change the pattern of resource allocation but will affect the total logistic cost although not significant. Related to domestic market obligation (DMO), stipulation of coal basin priority as supplier of a consumer area with respect to time will ensure the fulfilment of DMO quota for the mining companies.