Natural Gas as Petroleum Fuel Substitution: Analysis of Supply-Demand Projections, Infrastructures, Investments and End-User Prices

Abstract

The petroleum fuels (PF) subsidy has long burdens the government spending, and discourages less expensive energy usage such as natural gas (NG). Exporting NG and importing the more expensive PF products cause financial losses to Indonesia. The lack of NG infrastructure is the main hurdle in maximizing domestic NG usage and so does the perception of its high investment costs burdening government spending and pushing the NG transportation cost up. This study calculates the required NG infrastructure and its investments for several levels of PF substitutions up to 2030. To balance the NG demands, the supply from each field and its corresponding infrastructures needed was calculated and optimized using non-linear programming with generalized reduced gradient method to calculate the lowest transportation cost for the consumers. The study shows with a favorable return on investments attractive to private investors, the NG prices can still be put much lower than PF prices, allowing subsidy, import and production cost savings in many sectors. Furthermore, the highest level of substitution scenario needs only US$ 2.07 billion a year investment, very low compare to the current US$ 14.17 billion a year PF and electricity subsidy.

Natural gas as petroleum fuels substitution: Impact on economic performance in Indonesia

“…Furthermore, Tjandranegara et al (2010Tjandranegara et al ( , 2011 suggest that an increase above the BAU natural gas infrastructure investment will enable petroleum fuels to be substituted which in turn reduce energy subsidy, import, and cost. The findings are summarized in Table 2.…”

“…• Scenario 7 measures the impact of gas infrastructure investment and petroleum fuel substitution at a higher oil price (US$ 100 per barrel). The energy cost and investment in each sector as well as the transportation subsidy for every scenario in Table 4 was calculated base on Tjandranegara et al (2010Tjandranegara et al ( , 2011 findings.…”

“…Investment growths from 2011 to 2030 are averages of their corresponding investment growths from 2001 to 2010. Growth values for petroleum fuels and natural gas consumption were taken from findings by Tjandranegara et al (2011). The currency exchange rate and crude oil prices were assumed constant.…”