Last week, Indonesian state energy firm Pertamina admitted that the country may become a net importer of liquefied natural gas (LNG) by 2020, as soaring demand in the populous western islands dwarf domestic supplies from the energy-rich east. This isn’t the first time that this scenario has been mooted – the BMI Group projects the tipping point to be 2022, while Wood Mackenzie expects LNG demand in Indonesia to hit 7 mtpa by 2020 – with the fundamental structural shift always being the same: rising demand from a growing population and industrial base versus declining output at the country’s domestic gas fields.
As a country, Indonesia has some 1.6% of the world’s total gas reserves, according to the BP Statistical Review. In theory, it should not be in a situation where it is short of gas. The reality is though, that Indonesia is a country of two halves – the gas-deficit west, where the islands of Sumatra and Java represent nearly three-quarters of demand, and the gas-surplus east, where remote areas in Kalimantan, Papua, Maluku and Nusa Tenggara churn out plenty of natural gas. Bridging the two is tough. As an archipelago, Indonesia cannot opt for a nation-wide pipeline network; even within the country, domestic liquefaction and regasification facilities are required to move natural gas from producing areas in the east to consuming areas in the west.
That infrastructure is still lacking. Indonesia has a national roadmap to make natural gas 20% of the national energy mix by 2025, and has set out a US$48.2 billion plan from 2016 to 2030 to build an ambitious gas grid. The existing infrastructure is mainly concentrated on regas facilities in Java and a pipeline connecting to Riau islands in the South China Sea to Java running through Sumatra, which does not solve the conundrum of moving gas from Indonesia’s east to west. So the planned investment will be primarily focused on building a network of smaller-scale liquefaction facilities across the east, supplemented by mini-LNG terminals connected directly to gas-fired power plants in the east.
This, in theory, should allow Indonesia to bridge the gap between its two halves. The question is, will there be enough gas? Indonesia is currently the fifth largest LNG exporter in the world, but its contracts are aging and based on maturing fields where international firms are the operators. They will be sending most of that LNG to Japan and Korea, with a lesser portion saved for the Domestic Market Obligation (DMO) clause. Given declining natural gas output in recent years, the DMO supply is insufficient to meet growing demand. Unlike Petronas in Malaysia, Pertamina does not have an international network of gas and LNG sources with which it can swap and juggle to maintain domestic balance.
Starting up new production sources is an answer, but this has always been an area that Indonesia faces immense problems with due to the fiscal terms it offers for its E&P contracts. ExxonMobil walked away from the East Natuna project earlier this year over exactly that, while years of wrangling have push the projected start of Inpex/Shell’s Masela-Abadi LNG project from 2018 to 2025 at the earliest. Chevron’s Indonesia Deepwater Development (IDD) project in the Makassar Strait was supposed to start in 2016, but has now been pushed to 2020 due to ‘bureaucratic holdups’. These three, and other projects, would have provided enough additional LNG supplies to allow domestic supply to keep pace with demand, but chronic delays have axed the scenario. That isn’t to say that there aren’t bright spots in Indonesia’s natural gas scene – Eni’s Jangkrik field is reporting results that are a third higher than its initial 450 mmscf/d capacity, and BP has sanctioned an expansion of Tangguh LNG to include a Train 3 – but these are balanced with weak spots, like Total’s recent reduction in the expected output for the Mahakam field, which feeds the Bontang LNG plant.
So Indonesia must turn to imports to meet demand, which is projected to grow rapidly given the Indonesia government’s push to move power generation from coal to gas. A recent suggestion that Indonesia may be purchasing LNG from Singapore caused some furore based on national pride last month, but this is the future. Pertamina already has LNG supply deals with Australia’s Woodside (2019-2034), Cheniere (from 2018-2038) and ExxonMobil (2025-2045). Cavalier Indonesian officials may think that this might not even be needed – suggesting that this is ‘insurance’ supply that can be quickly redirected on the international market – but reality is more stark. As things stand, if there was an OPEC for gas, Indonesia would be forced to bow out in 2020. That’s not necessarily a bad thing – Malaysia recently went through a similar evolution – but it does mean that resource patriotism can no longer apply.
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In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.
Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.
Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.
This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.
But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.
In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.
But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.
Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.
Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.
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