SMALL SCALE LNG, THE BEST SUITED FOR ’S ARCHIPELAGOS

Moh. Taufik Afianto Business Development General Manager PT PERTAMINA (Persero), Indonesia [email protected]

KEYWORDS: LNG, regasification, gas infrastructure, power plant, industry, archipelago.

ABSTRACT

To shrink subsidizes of electricity cost in Indonesia, the Government instructed PLN, state-owned electricity company, to reduce using fuel oil feed for power plants by shifting to gas. PERTAMINA, state-owned energy company, captured the opportunity; hence in March 2011 both companies officially formed strategic alliance by establishing Joint Venture which mainly purposes to supply gas for eastern part of Indonesia’s energy infrastructure since electricity absorbs more than 50% of overall domestic gas demand with 6-8% CAGR. As the first priority, power plant in Pesanggaran, Bali island, will receive gas starting from 3rd quarter of 2014 and followed by 6 other power plants in East Kalimantan, South to North Sulawesi, and North Maluku in which the last project start up is in 1st quarter of 2015.

Due to archipelago country and scattered marginal small demand within 5 to 30 MMSCFD, small scale LNG is the most suited and efficient way to apply milk run of gas distribution in which trucking, coastal shipping, and barge-containerized LNG can be option to transport the gas.

As project implementer, both companies appointed their subsidiaries in the JVCo PT PERTA DAYA GAS where PT PERTAMINA GAS holds majority shares (65%) and PT INDONESIA POWER holds the remain ones.

To enhance security of supply, PERTAMINA integrates other LNG infrastructures all around Indonesia such as West FSRU, Central Java FSRU and Arun LNG Hub Terminal. Accordingly, PERTAMINA creates national grid of gas infrastructure and will bring multiplier effects since this project is milestone to lead development of industries and city gas in Indonesia’s archipelagos.

INTRODUCTION

In eastern part of Indonesia, many power plants in scattered locations are still consuming diesel fuel as their base load power generation system. This trend is suggested by the limited access for the cheaper form of energy due to the archipelago-geographic constraints. On the other hand, government subsidy on diesel fuel for power generation is excessive and need to be addressed at once.

With increasing need of electrification ratio in eastern part of Indonesia and good spirit for reducing Government subsidy on diesel fuel, PERTAMINA explore the possibility for replacing diesel fuel with cheaper form of energy to supply power plants in the respective region. Considering the existing Gas Liquefaction Plant, scattered marginal demand, and geographical condition of eastern part of Indonesia, small scale LNG transportation and regasification emerge as the potential option for transporting natural gas to the scattered location power plants as the replacement for diesel (“the project”). Accordingly, PERTAMINA creates connected national grid of gas infrastructure and will bring multiplier effects since this project is a milestone to lead development of industries and city gas application in Indonesia’s archipelagos.

In March 2011, PERTAMINA and PLN (Indonesia’s state owned electricity company) officially formed strategic alliance by establishing Joint Venture which mainly purposes to supply gas for eastern part of Indonesia’s energy infrastructure. As project implementer, both companies appointed their subsidiaries in the JVCo PT PERTA DAYA GAS at April 2012, where PT PERTAMINA GAS holds majority shares (65%) and PT INDONESIA POWER holds the remain ones. 1

OBJECTIVES

The objectives for the project can be looked from different point of views, they are:

1. Political a. Enhance National Energy Security and Sustainability; b. Increase electrification ratio in eastern part of Indonesia; c. Support Government Policy to increase portion of gas for domestic use; d. Support Government Policy to reduce fuel subsidy cost which has strong correlation with electricity demand growth;

e. Support Government Policy in respond of reducing CO2 emissions and air pollution; 2. Market a. Dominate gas market in eastern part of Indonesia; b. Increasing market size and focusing on Domestic market c. Create multiplier effects;

d. Lead development of industries and city gas usage through possible market expansion; 3. Infrastructure & Capability a. Create connected national grid of gas infrastructure;

b. Enter a complete LNG Chain Portfolio, in terms of facilities and size; c. Gain more skill, experience, and technology for sustainability; d. Implement supply chain strategies.

DEVELOPMENT

Thanks to the mature technology of LNG Transportation with LNG Vessels and also recent development of direct LNG distribution systems by the end of 20th century, wide options for transporting small scale LNG to other locations are offered. Those options are depicted in Figure 1.

Figure 1. Options for Small Scale LNG Transportation Mode

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As shown in Figure 1 and considering varied gas demand volume as well as geographical condition in eastern part of Indonesia, several small scale LNG transportation modes can be considered, those are:

• Marine Transportation: a. Small sized LNG vessel b. Coastal LNG vessel c. Barge ship with LNG ISO container • Land Transportation:

a. LNG Trailer / Trucking

Despite those wide array of options for transporting LNG, the economical ones depends on many aspects, i.e. utilization and optimization of existing facilities, demand gas/ LNG volume, proximity between supplier and consumer, geographical condition, lifetime of the project, technical losses, etc. Desktop studies in parallel with site visits are required for giving us rough economical perspective before moving forward to a more detail project proposal.

Feasibility of the project must also be seen in comparison with current condition. It must be competitive enough with the current diesel price or at least in breakeven condition but with other intangible benefits are in presence, i.e. better security of supply, better handling in technical and operational aspects, etc. It was mentioned that in eastern part of Indonesia, diesel fuel is consumed for base load power generation system, however the blueprint is different for Java, Sumatera, and Borneo/ Kalimantan Islands. In those islands where other cheaper forms of energy exist, usage of diesel fuel is limited to “peaing operation” (only operated in + five hours/day, 17:00 ~ 22:00), while “base load operation” (whole day operated) is conducted with coal or gas power generation system which have lower cost than diesel power generation system. By doing so, the electricity cost can be reduced significantly. Therefore, the electricity cost in eastern part of Indonesia will be much higher of than in the Java, Sumatera, and Kalimantan Islands, this profile can be seen through Figure 2.

Papua Maluku East Nusa Tenggara West Nusa Tenggara South & South East Sulawesi North & Central Sulawesi East Kalimantan South & Central Kalimantan West Kalimantan Lampung Southern Batam Riau West Sumatra Bali Java 0% 100% 200% 300% 400% 500%

Figure 2. Profile of Indonesia’s Electricity Cost

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In Figure 2, by assuming diesel engine efficiency of 65% and gas engine efficiency of 30%, and by taking electricity cost in Java Island as 100% basis, electricity cost in eastern part of Indonesia (Papua, Maluku, East Nusa Tenggara, West Nusa Tenggara, South & South East Sulawesi, North & Central Sulawesi) are up to five times higher due to the extensive use of diesel fuel. It then also understood that the feasibility of the project can become much more competitive and attractive, this alone depends on the investment and operating cost employed which will be explained in the next few paragraphs.

The chosen transportation modes will proportionally affect the investment and operating cost employed. Preliminary site visit surveys have also been done to right match the transportation technology. After that, preliminary feasibility study was conducted and the result is shown inside Table 1 and Figure 3.

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Table 1. Preliminary Feasibility Study, LNG for Eastern Part of Indonesia

Energy Sales Demand OPEX/ Scenario Destination Possible LNG Source Case Scenario CAPEX Price to Volume year Customer 0 Baseline, Diesel Fuel - Diesel Fuel - - - 100% 1 Kalimantan A PT Badak NGL Land Transport - Truck 240% 109% 131% 58% 2a PT Badak NGL Land Transport - Truck 400% 127% 219% 57% 2b PT Badak NGL Container Barge 400% 282% 194% 60% Kalimantan B 2c PT Badak NGL Container Barge A - Truck 400% 273% 200% 60% 2d PT Badak NGL Container Barge B - Truck 400% 355% 256% 64% 3 Kalimantan C PT Badak NGL Land Transport - Truck 200% 100% 150% 60% 4a PT Badak NGL Land Transport - Truck 100% 100% 181% 76% 4b Kalimantan D PT Badak NGL Container Barge A - Truck 100% 136% 156% 75% 4c PT Badak NGL Container Barge B - Truck 100% 145% 144% 75% 5a PT Badak NGL Land Transport - Truck 240% 145% 263% 65% 5b Kalimantan E PT Badak NGL Container Barge A - Truck 240% 218% 194% 65% 5c PT Badak NGL Container Barge B - Truck 240% 264% 181% 66% 6a PT Badak NGL - A Container Barge 400% 627% 256% 68% 6b PT Badak NGL - A Container Barge - Truck 400% 600% 263% 71% 6c PT Badak NGL - B Container Barge - Truck 400% 609% 313% 73% Sulawesi A 6d PT Badak NGL - A Container Barge 400% 445% 225% 65% 6e PT Badak NGL - A Container Barge - Truck 400% 427% 231% 65% 6f PT Badak NGL - B Container Barge - Truck 400% 436% 281% 67% 7a PT Badak NGL - B Container Barge 120% 236% 163% 80% 7b PT Badak NGL - B Container Barge - Truck 120% 236% 163% 80% 7c PT Badak NGL - A Container Barge - Truck 120% 236% 181% 82% Sulawesi B 7d PT Badak NGL - B Container Barge 120% 182% 150% 75% 7e PT Badak NGL - B Container Barge - Truck 120% 182% 156% 75% 7f PT Badak NGL - A Container Barge - Truck 120% 182% 169% 77% 8a PT Badak NGL Small Ship 1000% 682% 1106% 65% 8b Sulawesi C Sengkang LNG Coastal Ship 1000% 673% 625% 60% 8c PT Donggi Senoro LNG Small Ship 1000% 709% 1106% 65% 9a PT Badak NGL Container Barge 120% 300% 100% 95% 9b PT Badak NGL Container Barge - Truck 120% 300% 213% 101% Sulawesi D 9c PT Donggi Senoro LNG Container Barge 120% 309% 100% 96% 9d PT Donggi Senoro LNG Container Barge - Truck 120% 309% 225% 103% 10 NTB, NTT, Halmahera A PT Badak NGL Coastal Ship 340% 391% 563% 74% 11a PT Badak NGL Small Ship 1700% 755% 1456% 60% 11b Simenggaris LNG Small Ship 1260% 736% 975% 61% 11c NTB, NTT, Halmahera B Salawati LNG Small Ship 570% 600% 644% 68% Simenggaris LNG and 11d Small Ship 1700% 855% 1425% 61% Salawati 5

Gas Volume CAPEX 1800% 900%

1600% 800%

1400% 700%

1200% 600%

1000% 500%

800% 400%

600% 300%

400% 200%

200% 100%

0% 0% 1 3 1 3 6f 7f 6f 7f 2c 4c 5c 6c 7c 8c 9c 2a 4a 5a 6a 7a 8a 9a 2c 4c 5c 6c 7c 8c 9c 6e 7e 10 2b 2d 4b 5b 6b 6d 7b 7d 8b 9b 9d 2a 4a 5a 6a 7a 8a 9a 6e 7e 10 2b 2d 4b 5b 6b 6d 7b 7d 8b 9b 9d 11c 11a 11c 11a 11b 11d 11b 11d Scenario Scenario OPEX Energy Sales Price to Customer 1500% 120% 1400% 1300% 100% 1200% 1100% 1000% 80% 900% 800% 60% 700% 600% 500% 40% 400% 300% 20% 200% 100% 0% 0% 0 1 3 1 3 6f 7f 6f 7f 2c 4c 5c 6c 7c 8c 9c 2a 4a 5a 6a 7a 8a 9a 7e 6e 10 2b 2d 4b 5b 6b 6d 7b 7d 8b 9b 9d 2c 4c 5c 6c 7c 8c 9c 2a 4a 5a 6a 7a 8a 9a 6e 7e 10 2b 2d 4b 5b 6b 6d 7b 7d 8b 9b 9d 11c 11a 11b 11d 11c 11a 11b 11d Scenario Scenario

Figure 3. Profile of Preliminary Feasibility Study, LNG for Eastern Part of Indonesia 6

In Table 1 and Figure 3, with the same basis of LNG price (therefore liquefaction cost is excluded from consideration), assuming diesel engine efficiency of 65%, and gas engine efficiency of 30%, many scenarios are exercised with result as follows:

1. Gas Volume Demand Profile: • Eastern part of Indonesia has marginal gas demand in the range of 3 to 30 mmscfd, the smallest gas demand comes from Kalimantan D Scenario. The number is then made as 100% basis for the comparison with other area’s demand profile; • The biggest demand profile comes from industrial sector in NTB-NTT-Halmahera B Scenario, about 16 times bigger than gas demand in Kalimantan D Scenario; 2. Capital Expenditure (CAPEX) Profile: • The smallest CAPEX needed comes from Kalimantan C and D Scenario, comprising LNG Trucking as land transportation mode, this also taken as 100% basis. This direct distribution of LNG by road is used in cases where existing pipeline is either incomplete or in under capacity; • The biggest CAPEX needed comes from industrial sector in NTB-NTT-Halmahera B Scenario, comprising small LNG vessel as marine transportation mode. 3. Operating Expenditure (OPEX) Profile:

• The smallest OPEX needed comes from Sulawesi D Scenario, comprising Container Barge as marine transportation mode, and taken as 100% basis; • The biggest OPEX needed comes from industrial sector in NTB-NTT-Halmahera B Scenario, comprising small LNG vessel as marine transportation mode; • High CAPEX and OPEX profile also seen in other location which also use LNG vessel as the transportation mode, that being said, even though the technology is the most proven ones, marine transportation via LNG vessel is still rather expensive in terms of investment and operating cost, especially for small demand volume; 4. Energy Sales Price to Customer:

• By taking diesel price as 100% basis and using the same value of Internal Rate of Return (IRR), many exercised scenarios still competitive and give enough margin (<100%) if compared with diesel; • We can take some notes here, even though the CAPEX and OPEX profiles are higher in some scenarios, however, the resulting sales price can be lower than other scenarios. This can be made possible if those scenarios have high demand gas volume which then offset the high investment and operating cost by making the price per-energy-unit lower.

This preliminary study still shows us about more than 30 scenarios; more detailed site surveys are needed to understand the technical hurdles in each locations (i.e. river width, water draught, road condition, etc) for converging the scenarios and moving to a more firm project proposal.

CONCLUSION

1. With increasing need of electrification ratio in eastern part of Indonesia and good spirit for reducing Government subsidy on diesel fuel, PERTAMINA explore the possibility for replacing diesel fuel with cheaper gas to supply power plants and industrial sector in the respective region; 2. Eastern part of Indonesia has marginal gas demand in the range of 3 to 30 mmscfd, small scale LNG transportation & receiving terminal is the most suitable and efficient way for gas distribution.

Gas demand volume, geographical profile, and existing infrastructures are the main considerations to choose the right match technologies; 7

3. By having LNG regasification in eastern part of Indonesia, PERTAMINA can lead and grab development of industries and city gas usage through possible domestic market expansion; 4. Through the development of several small scale LNG projects, Indonesia is entering into a complete LNG chain portfolio, in terms of facilities and size. A closer stage to reach gas supply – demand balance and to boost national energy sustainability.

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