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Source: www.asiaecon.org |

INDONESIA FACES NATURAL GAS SHORTAGE


Indonesia is on the brink of experiencing a natural gas supply shortage. The shortage will force Indonesian industries to layoff staff and lower its output. The Industry Ministry’s industrial research and development agency is currently working to find solutions to minimize the effects of the crisis.


Indonesia is on the brink of experiencing a natural gas supply shortage. The shortage will force Indonesian industries to layoff staff and lower its output. The Industry Ministry’s industrial research and development agency is currently working to find solutions to minimize the effects of the crisis.

In September 2008, Indonesian-state owned gas distributor PT Perusahaan Gas Negara (PGN), reported that it would be unable to meet the growing demand for gas in 2009. The gas shortage will force industries to rely more heavily on diesel fuel, a much more expensive energy source.

PGN is Indonesia’s main natural gas provider. Its three main business units are located in West Java, East Java, and Sumatra. PGN signs long-term supply agreements with upstream operators, which give the company scheduled gas volumes and fixed gas prices.

Perusahaan Listrik Negara (PLN), the state electric company of Indonesia, plans to purchase far more gas from PGN this year, leaving other Indonesian industries with an insufficient supply. PLN plans to purchase more gas to convert two of its largest fossil fuel plants to solely gas plants. In addition, PGN has signed contracts to supply gas to PLN facilities such as the Cilegon, Batam, Muara, Tawar, and Tanjung Priok power plants.

One sector that will be hit hard from the gas shortage is the textile industry. Because Indonesia’s textile industry is labor-intensive, the shortage may result in downsizing and a decrease in output.

Indonesia’s ceramics sector will also suffer heavy losses from the gas shortage. The ceramics industry is heavily dependent on gas, consuming as much as 115 million standard cubic feet per day. A shift from using gas to coal is nearly impossible, as the ceramic products will be stained from the ash produced from burning coal. Furthermore, the ceramics industry cannot use diesel fuel because it is far too expensive. Even if ceramics manufacturers doubled the prices of their products, they wouldn’t be able to cover the additional costs.

The Indonesian Ceramics Association currently contains 40 members, but if PLN seals the deal with PGN, up to 27 members in West Java and East Java may be forced to close down.

The chemical-based industries may suffer even more setbacks than the textile and ceramics industries. For example, the fertilizer industry is part of the chemical-based industry that uses gas as a raw material. PGN may not have enough gas to meet the fertilizer industry’s demand this year. The potential damage to the chemical-based industries next year will be great, but is yet to be calculated.

In addition to causing setbacks to Indonesia’s textile, ceramics, and chemical-based industries, the damage done to these industries may affect the output of other industries as well. Finding ways to minimize the negative effects of the shortage has become a top priority of the Industry Ministry’s industrial research and development agency. PGN has also sought to remedy the problem by purchasing additional gas resources. It is hoping to buy 1.5 million tons of gas from Australia and Iran for its terminal in Cilegon.

Moreover, government officials have granted Chevron Corporation permission to build an offshore natural gas field near Borneo Island. Chevron will invest at least $6 billion to develop the project. Although this project should put a spike in Indonesia’s supply of natural gas, it will not be complete in time to help cope with upcoming shortage. Thus, Indonesian government officials will have to look elsewhere to meet the country’s rising demand for gas.

Source: www.AsiaEcon.org

 

 

Source: www.asiaecon.org |


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