Indonesia Natural Gas Market Outlook to 2030

Indonesia Natural Gas Market Overview

• The Indonesias proven natural gas reserves stand at 64 billion cubic meters, making it one of the largest reserves in the Asia-Pacific region. Indonesias natural gas market plays a pivotal role in the countrys energy landscape, driven by substantial reserves, growing domestic demand, and efforts to reduce reliance on oil imports. The sector is bolstered by favorable government policies aimed at increasing gas production, expanding domestic consumption, and promoting gas as a cleaner energy source compared to coal and oil.

• Indonesias natural gas market is predominantly influenced by major industrial cities such as Jakarta, Surabaya, and regions rich in natural resources like Kalimantan and Sumatra. These regions dominate the market due to their proximity to gas fields, major industrial hubs, and strategic investments in gas infrastructure. Kalimantan, for instance, has been a focal point for the countrys upstream gas operations, while Java has seen development in gas transportation and distribution infrastructure, solidifying its position as a major consumer.
• The government has initiated several strategic projects to expand Indonesias natural gas infrastructure, including the development of liquefied natural gas (LNG) facilities, gas pipelines, and gas processing plants. In 2023, the government approved USD 1.2 billion in investments for the development of new gas pipelines connecting major industrial areas, which is expected to facilitate easier transportation of gas to key demand centres.

Indonesia Natural Gas Market Segmentation

• By Sector: The market is segmented by consumption sectors, including industrial, power generation, and residential, commercial and transportation sectors. The industrial sector dominates the natural gas market, consuming around 50% of the total gas supply. Power generation follows closely, as the government continues to push for natural gas-fired power plants to reduce emissions from coal-powered facilities. The residential sector's contribution remains modest but is growing due to new policies encouraging household connections to the gas grid in urban centers.

• By Distribution Method: The market is also segmented by distribution methods, including pipeline gas and liquefied natural gas (LNG). Pipeline gas is the predominant method of distribution, supported by extensive pipeline infrastructure connecting production sites to industrial hubs. LNG, however, has gained momentum, particularly for export purposes. In 2023, Indonesia exported 5 million tonnes of LNG to regional markets like Japan, China, and South Korea, leveraging its strategic geographic location.

Indonesia Natural Gas Market Competitive Landscape

The Indonesia natural gas market is competitive, with major players including state-owned enterprises and multinational corporations. Pertamina, Indonesias state-owned oil and gas company, dominates the upstream and downstream sectors, including gas production, processing, and distribution. The entry of global energy giants such as Chevron and TotalEnergies has increased competition, particularly in exploration and production activities.

Indonesia Natural Gas Market Industry Analysis

Growth Drivers

• Abundant Reserves and Increased Exploration Activities: Indonesia holds the largest proven natural gas reserves in Southeast Asia, with 98 trillion cubic feet (Tcf) as of 2024, making it a player in the regional market. New exploration activities, especially in East Natuna, are expected to bolster production. The government's proactive efforts, including opening up 10 exploration blocks for bidding in 2023, support further reserve discoveries. With enhanced exploration, Indonesias capacity to supply domestic and international markets has strengthened, helping to meet growing industrial demand.
• Government Policies Favoring Natural Gas Utilization: The Indonesian government has prioritized the transition from oil to natural gas to reduce the environmental impact of fossil fuel consumption. Policies promoting the use of natural gas in power generation and industry have been instrumental in driving demand. In 2023, the government issued a directive to increase the share of natural gas in the energy mix to 25% by 2030. Additionally, tax incentives and subsidies for gas-fired power plants have made gas an attractive energy source for industries.
• Rising Industrial and Power Sector Demand: In 2024, Indonesias industrial sector consumed 2.1 trillion cubic feet (Tcf) of natural gas, driven by the demand from sectors like petrochemicals, manufacturing, and steel production. Additionally, the power generation sector, which accounted for over 50% of the countrys gas consumption in 2023, continues to grow. As gas-fired power plants become more prevalent, natural gas demand is expected to remain robust, positioning Indonesia as a key regional player in the sector.

Market Challenges

• Inadequate Gas Distribution Infrastructure in Remote Areas: Despite Indonesias natural gas reserves, the distribution infrastructure, particularly in remote and rural areas, remains underdeveloped. The majority of gas pipelines are concentrated in more populated regions like Java and Sumatra, leaving areas such as Papua and East Nusa Tenggara underserved. This lack of infrastructure limits the reach of natural gas to remote industries and households. To address this issue, further investments are needed in expanding pipeline networks and related infrastructure, ensuring a more equitable distribution of natural gas across the country.
• Regulatory Bottlenecks and Licensing Delays: Despite ongoing efforts to streamline regulatory processes, delays in licensing and approvals for new exploration and production projects are still a notable challenge in Indonesia. The process of obtaining licenses for gas exploration can often slow down critical projects, particularly in key regions like East Kalimantan. These delays not only hinder the timely development of new gas fields but also impact the overall progress of Indonesias natural gas sector, highlighting the need for more efficient regulatory frameworks and faster approvals.

Indonesia Natural Gas Market Future Outlook

The Indonesia natural gas market is expected to continue its growth trajectory through 2028, driven by rising domestic demand, increased industrial usage, and ongoing government efforts to promote natural gas as a key energy source. The development of LNG facilities and expanded pipeline infrastructure will further support market expansion. The governments commitment to transitioning to cleaner energy sources is expected to bolster the natural gas market in the coming years.

Future Market Opportunities

• Expansion of LNG Export Facilities: Indonesias existing LNG facilities, like the Bontang LNG terminal, have been operating at near full capacity. To capitalize on growing demand in markets such as China and South Korea, Indonesia plans to add new export terminals, particularly in Papua and Sulawesi, with a projected increase of 25% in LNG handling capacity by 2025. This expansion will allow Indonesia to remain competitive in the global LNG market and provide additional revenue streams.
• Development of Gas-to-Power Projects: The Indonesian government has prioritized gas-to-power projects, such as the Jawa 1 project, which will generate 1,760 megawatts upon completion in 2024. This initiative aligns with the country's goal of reducing its dependence on coal-fired power plants, aiming for a 20% share of gas-generated electricity. These gas-to-power projects represent an opportunity to increase the utilization of domestic gas resources while contributing to the national energy grid.