Energy board raises alarm, demands breakthrough

The Jakarta Post, Jakarta | Business | Wed, August 20 2014

Indonesia’s National Energy Council (DEN) has warned the next administration that doing “business as usual” could trigger an “energy emergency” in the country and has provided policy recommendations primarily aimed at reducing the burdensome fuel subsidy and creating breakthroughs, especially in renewable energy.

Some 1.5 million barrels of fuel are consumed in the country each day, with domestic production meeting just half of the demand, or some 788,000 barrels per day (bpd). This means that Rp 874 billion (US$74.8 million) must be spent by the government each day on fuel imports make up the difference, according to DEN member Syamsir Abduh.

He added that the figure was based on the current benchmark Indonesian Crude Price (ICP) of $104.63 per barrel and an exchange rate of Rp 11,739 against the US dollar.

“We will face an energy emergency, or even [an energy] disaster, in 2018 if this kind of policy remains in place and [the government] keeps doing business as usual,” he said at DEN headquarters in Jakarta on Tuesday.

The existing energy policies are considered “harmful” and not conducive to the country’s vision of energy independence, as fuel remains heavily subsidized and consumption rates soar. Indonesians pay a fixed price of Rp 6,500 per liter for premium gasoline or Rp 5,500 per liter for diesel — both of which are subsidized by the government. Or, they can purchase higher quality non-subsidized fuel for about twice the price.

Indonesia, a former member of the Organization of the Petroleum Exporting Countries (OPEC), has witnessed declining oil production due to a combination of aging oil fields and explorations that have failed to locate large reserves of hydrocarbons. As a result, Indonesia has been forced to import fuel to meet its fuel needs, severely straining the state budget.

Cutting fuel subsidies that mostly benefit middle-income consumers who can afford to buy motorcycles and cars should be the incoming government’s first priority for reducing fuel imports, especially because the funds could then be redirected to sectors like education, health care and infrastructure, DEN member Rinaldy Daimi said.

Advancements in renewable energies also needed to be accelerated, at least during the first year the new administration steps into office, Rinaldy added.

“The new government should optimize DEN as a tool to support the renewable energy programs, because we already stated in our National Energy Policy Design (KEN) that renewable energy should account for at least 23 percent of total energy consumption in 2025,” he said.

Rinaldy cited Brazil’s decision to set aside 8 million hectares of land for the production of sugarcane to be processed into ethanol, a new kind of biofuel, as an example of the kinds of initiatives Indonesia needed. He said this move had also bolstered domestic supplies of sugar.

Several other plants, such as cassava, buckwheat and the country’s abundant supply of palm oil could also be utilized to produce biofuels.

Indonesia, however, is still reliant on oil to meet 44 percent of its energy needs, with gas
accounting for 23 percent, coal for 27 percent and renewable energy for 6 percent. It is estimated that reserves for oil, gas and coal will run out in 10 years, 30 years and 80 years, respectively.

Hence, the DEN energy blueprint recommends an energy mix in 2025 of 30 percent coal, 25 percent oil, 22 percent gas and 23 percent renewable energy.

In 2050, the council recommends an energy mix of 26 percent coal, 20 percent oil, 24 percent gas and 30 percent renewable energy.

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