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Indonesia may cut reliance on LPG imports by 2030 on dimethyl ether output plans

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Indonesia may cut reliance on LPG imports by 2030 on dimethyl ether output plans

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Indonesia to ramp up output of LPG substitute dimethyl ether

Jakarta finds DME much more economical than LPG

Singapore — Indonesia may no longer require to import LPG from 2030 as the country will likely be able to produce enough dimethyl ether, or DME, a substitute source for the fuel, a senior government official said in a parliamentary hearing in the week of Jan. 17.

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This is the latest move by Indonesia, the fourth largest LPG importer in Asia, to reduce dependence on costly LPG imports which took up Rupiah 50.6 trillion ($3.6 billion) in subsidies, after a plan to further develop its nationwide pipeline network to supply natural gas to thousands of households across several provinces in the west to the east.

The Energy and Mineral Resources Minister Arifin Tasrif said that Indonesia's LPG consumption in 2030 is expected to reach 9.7 million mt/year. The demand will be fulfilled by various sources, including the country's existing LPG output of 1.2 million mt/year from natural gas processing facilities, production from local refineries of 1.8 million mt/year and 4.5 million mt/year of DME output.

DME will be able to significantly contribute to Indonesia's LPG import reduction, Tasrif said. Indonesia's state-owned oil and gas company Pertamina, state-owned coal company PT Bukit Asam (PTBA) along with New York-listed industrial gases company Air Products are working on developing a DME production plant and facilities. PTBA will supply the coal feedstock, Air Products will take care of necessary investments and it will be responsible for applying the technology design of the plant, while Pertamina will be the off taker.

The project, located in Tanjung Enim in South Sumatera, is expected to produce 1.4 million mt/year of DME.

The Indonesian government is preparing various incentives to lure DME development, Arifin said. Jakarta finds that DME is a more economical fuel source than LPG, as the production cost is lower. For instance with the current situation, DME production cost is expected to reach $420/mt compared with LPG production cost of $550/mt.

Indonesia's LPG demand has been rising 5%-6% annually and in 2020 reached 8 million mt, of which 6 million mt was met from imports.

Based on data from the Ministry of Energy and Mineral Resources in 2020, LPG production in 2020-2024 is estimated to be stable at around 1.97 million mt/year. This production is only about 50.8% of the existing LPG production capacity of 3.88 million mt/year.

In the last four years, Indonesia has also been diversifying its LPG supply sources to secure cheaper cargoes from the US and from nearby Australia, so as to not be overly dependent on Middle Eastern producers.

Prices of CFR North Asia evenly split propane/butane cargoes -- which Indonesia imports -- averaged $648.38/mt so far in 2021. The average for 2020 was $391.38/mt and the price averaged $458/mt in 2019, according to S&P Global Platts data.