Development of the Domestic LNG Value Chain and Infrastructure in Indonesia

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1 Development of the Domestic LNG Value Chain and Infrastructure in Indonesia James Brown Regional LNG and Gas Consulting Manager 1 SAFER, SMARTER, GREENER

2 DNVGL Global network through local support 2

3 Existing and forecast LNG fuelled ships and bunkering infrastructure 50 LNG fuelled ships in operations 50 more ordered 3

4 Existing and forecast of LNG bunkering infrastructure in Japan, Korea and South East Asia Korea LNG bunkering facilities in Korea KOGAS is supplying LNG bunkers to Asia s first LNG powered passenger ship, Econuri, at Incheon Port. KOGAS began a trial run on March 7, supplying the LNG bunkers from SongdoPort in Pohang. KOGAS also studied potential locations at Busanand Pyeontaek. KOGAS is also in discussion with Japan Gas Associationto supply LNG as fuel to vessels operating on the South Korea-Japan ferry route Japan Japan's NYK is to build the country's 'first' tug featuring a dual-fuel engine that can run on either LNG or HFO built in Japan. Tokyo Gas Co will supply the LNG. No site has been announced for the LNG bunkering facilities Singapore Singapore has a strong interest on providing LNG as fuel. A number of studies have been completed such as LNG bunkering feasibility studies, LNG bunkering operational procedures and standards and also, an MOU was signed between MPA and Port of Antwerp and Zeebruggeto harmonise LNG bunkering standards Incheon Pyeongtaek Singapore Busan 4

5 Selection of LNG Studies and Joint Industry Projects 2013 Various Small Scale KNG studies for S Korea, Middle East & Australia Opportunities for LNG in the Philippines and Vietnam Sources: DNV Singapore LNG Bunkering JIP Cutting edge project investigating small scale LNG based distributed power Small scale LNG market study and opportunity identification Assessment of LNG logistics chain in Indonesia JIP Feasibility of the SEA market for LNG shipping and distribution Opportunity assessment of the Southeast Asian market for LNG shipping and distribution Results of JIP identifying that LNG could increasingly be used to serve power needs in Eastern Indonesia Figure 1: List of some of the JIP members 5

6 Increased deployment of small scale LNG in Indonesia will reduce government diesel subsidies Drivers for small scale LNG in Indonesia include: Geographical: Dispersed islands No extensive gas pipeline network Political: Strong government-led efforts to increase the portion of gas for domestic use Heightened government awareness on the need for using LNG to transport gas Government expected to reduce local pollution and CO 2 emissions Market: High price of diesel compared with LNG Indonesian fuel subsidies are increasingly costly as electricity demand grows Need for distributed power generation Technical: Proven technical feasibility Important facilities such as FSRU soon to be online Sources: Interviews, World Bank (2005) High cost of electricity generation in Eastern Indonesia PLN s sales revenues and costs of supply by region in 2005 (in US cents) 6

7 DNVGL performed cost-benefit analyses on two LNG supply chain types in Eastern Indonesia Liquefaction plant Small-scale LNG ship (10,000 12,000 m3) Small-scale LNG terminal (Onshore or Offshore) LNG truck LNG storage & regasification (Satellite plant) Power Plant FLNG Small-scale LNG ship (10,000 12,000 m3) Small-scale LNG terminal (Onshore or Offshore) NG pipeline Supply chain options have no one size fits all risks in each scenario varies and solutions have to be customized to each locality 7 7

8 2011 study identified 4 potential small scale LNG milk runs in Eastern Indonesia 8

9 Eight Small Scale LNG Import Terminals were identified in 2011 for development 9

10 What is preventing the Domestic Small Scale LNG market from developing? Technology LNG Sellers Infrastructure Economics Finance Regulation LNG Buyers 10

11 Summary: Opportunities still exist to overcome challenges and succeed with Domestic LNG in Indonesia Small scale and domestic LNG has huge potential in Indonesia Substituting diesel or HFO at suitable volumes will justify the investment because the (increasing) price differential exceeds the transport costs Many such opportunities exist in Indonesia, driven by geographical, political, economic and technical factors Captive power in particular represents a good opportunity Eastern Indonesia has many energy-intensive, isolated mines currently using diesel or HFO Eastern Indonesia has suitable supplies of LNG planned and proposed.but only if we can open valves that are preventing infrastructure development 11

12 Terima Kasih James Brown SAFER, SMARTER, GREENER 12