indonesia

EXECUTIVE SUMMARY
This essay examines the complicated nexus between natural gas and electricity in
Indonesia and explores the importance of realizing the potential of gas in Indonesia’s energy
mix to reduce an excessive reliance on coal for power generation.
MAIN ARGUMENT
Indonesia’s energy needs will grow markedly over the next two decades due to
demographics and economic development. But the country’s energy system has a tendency
to grow on the back of whichever domestic fuel is most abundant and affordable—which
today is coal. As such, the government’s efforts to bring electricity to all Indonesians rests
on an aggressive program of adding coal-fired generation capacity. In part, such reliance
on coal is the inevitable byproduct of geography and the country’s resource endowment;
yet it also reflects pessimism about how much natural gas can contribute to the electricity
mix. If Indonesia is to avert the environmental and social catastrophe that will accompany
a massive coal buildup, it needs to get natural gas right. This means reforming rules and
regulations to unlock the country’s immense untapped natural gas potential.
POLICY IMPLICATIONS
• At a time when countries are intensifying their efforts to limit carbon emissions,
Indonesia is doubling down on coal and embarking on a large-scale program to add
coal-fired power-generation capacity.
• Indonesia has considerable untapped resources of conventional and unconventional gas,
and the full exploitation of those resources will reduce the need to rely so heavily on coal
for the country’s power-generation needs.
• Indonesia can develop its natural gas resources only by embarking on an ambitious
reform program that provides regulatory clarity, streamlines investment decisions, and
provides the certainty that companies need to invest in the country.