CBM could make Indonesia an important global energy player

Indonesia’s coalbed methane (CBM) reserves are among the largest CBM reserves in the world. Currently, the country’s reserves are estimated to be around 453 trillion ft³, according to market analysts Indonesia Investments. This means the country sits on roughly 6% of worldwide CBM reserves. It is also more than double the country’s natural gas reserves. However, Indonesia’s utilisation of the energy resource remains low.

The Indonesian Government recently chose to reduce its CBM production target to only 8.9 million ft³/day, far below its initial target of 500 million ft³/day.

The revision was largely due to the fact that many projects already approved by the government did not proceed as expected. This discouraged investors from placing funds into the growing energy sector.

In a recent article for the Jakarta Post, Rohmad Hadiwijoyo, CEO of energy company PT RMI, argued that if the country can tackle the main challenges that must be overcome in utilising its CBM reserves, Indonesia could re-emerge as one of the important global energy players.

According to Hadiwijoyo, three factors have contributed to the lack of investor confidence: first, contradictory regulations; second, unaddressed environmental issues; and third, limited use of CBM to generate industrial activities in Indonesia. 

In the regulatory area, Hadiwijoyo argues, regulations on CBM can be traced to the government’s 2006 regulation on national energy policy that aimed to ensure sustainability of energy supplies, both using fossil and renewable energy sources. Then, in 2007, the House of Representatives passed Law No. 30 on energy that aimed to achieve sufficiency in energy supplies.

The law and regulation are at the level of the central government, but implementation in the field often overlaps with local regulations issued by local administrations, as all the CBM projects are located in regions, where local governments are the de facto rulers. 

Meanwhile, Hadiwijoyo also explains that investors are hesitant to invest in what will inevitably be seen as a fossil fuel energy source, despite its branding as being an alternative source of energy. The fact that burning CBM still produces greenhouse gasses, he says, detracts from the potential offered by the resource.

There also remains the contentious issue of the amount of water required to extract the methane from the coal. An estimated 12 – 15 million gal. of water is needed for each CBM well to push the methane from the coal seams. This water is often viewed as contaminated and is often not suitable for use in agriculture or for human consumption.

Currently, CBM in Indonesia is often only used as a fuel for power plants located near the location of CBM mining areas, to generate electricity for industries in the vicinity of the power plant or people living nearby.

The limited usage of CBM renders investment in its production unattractive, Hadiwijoyo says. “It needs some effort to market CBM for other uses, such as a raw material for fertiliser or petrochemical plants, especially those located near the CBM producing areas,” he argues. “CBM produced in East Kalimantan, for example, could be used as a raw material for fertiliser or petrochemical plants located in the province.”

“CBM could also be used as fuel for other industries, such as a steel-smelting plant. Or even more radically, CBM could also be used as automobile fuel in the form of compressed natural gas (CNG),” Hadiwijoyo suggests.

If CBM producers can find more uses for it as a commercial fuel, demand for the product will likely increase and, therefore, investment in CBM will become more attractive. “When investment becomes attractive, business people holding CMB concession areas will resume their production plans,” Hadiwijoyo says.

Indonesia's largest CBM basins are located in:

1. South Sumatra.
2. South Kalimantan.
3. East Kalimantan.

And some smaller basins can be found in:

1. Riau (Sumatra).
2. Bengkulu (Sumatra).
3. West Java (northern coastal area).

Previous CBM investment

The first significant CBM project in Indonesia was the Sanga Sanga field in East Kalimantan that was awarded – in 2009 – to a consortium in which BP and ENI hold large stakes. State-owned energy company, Pertamina, conducts the country's second CBM project (located in South Sumatra) through its subsidiary Pertamina Hulu Energi. The company has mooted its intention to further develop CBM assets in the country.

CBM promises big returns

“When investment in CBM promises big returns,” Hadiwijoyo continues, “concerns about regulatory issues will be discounted and questions about environmental impact can be mitigated. It also brings new opportunities for Indonesia to generate more investment and produce more CBM.”

With CBM, Indonesia has the potential to redraft its energy charts, in a similar way to the US following the discovery of shale gas. With the abundance of shale gas, especially with its low production costs, the United States has reduced its dependence on oil and gas imports. 

To emulate the US with its shale gas, Indonesia must address all issues that make investment in CBM less attractive, according to Hadiwijoyo. To make the fuel an attractive investment prospect, it needs regulatory support, down to the district level, reducing the impact of issues regarding redundancy and overlaps. 

Importantly, CBM production requires advances in technology, in particular the technology needed to separate methane from the coal seams so that it is cheaper to produce, as well as making extraction more environmentally friendly. Finally, Hadiwijoyo says, the sector needs more demand, especially from those users in industries that could use the fuel.

If Indonesia can tackle these challenges — regulatory, environmental and most importantly wider use of CBM — it will re-emerge as one of the important global energy players, Hadiwijoyo concludes. 

Edited from various sources by Sam Dodson

Read the article online at: https://www.worldcoal.com/cbm/22042014/cbm_vital_to_indonesia_energy_sector_cbm8/