Opportunities and Risks of Small Scale LNG Development

Opportunities and Risks of Small Scale LNG
Development in Indonesia
DET NORSKE VERITAS

5/10/2011
Opportunities and Risks of small scale LNG development in
Indonesia
Background
Opportunities
Risks
Risks and Opportunities of Small Scale LNG Development in Indonesia

5/10/2011
Det Norske Veritas AS. All rights reserved. 3
The Clean Technology Centre in Singapore provides DNVs wider
service offerings to the Asia Pacific region
Maritime
Banks and finance
Oil and gas
Renewable energy
Power generation & transmission
Risks and Opportunities of Small Scale LNG

Development in Indonesia Governments, international
institutions and R&D organisations

5/10/2011
DNV CTC has performed extensive work with numerous partners on
small scale LNG in Indonesia
Cutting edge project investigating

small scale LNG based distributed
power
Small scale LNG market study and

opportunity identification
Assessment of LNG logistics chain

in Indonesia
Results of JIP identifying that LNG could increasingly be used to serve power
Joint industry project Feasibility needs in Eastern Indonesia
2011 assessment of the Southeast Asian

market for LNG shipping and
distribution
Opportunity assessment of the

Southeast Asian market for LNG
shipping and distribution
2010
Figure 1: List of some of the JIP members
Sources: DNV

5/10/2011
Increased deployment of small scale LNG in Indonesia will reduce
government diesel subsidies
Drivers for small scale LNG in Indonesia include:
Geographical:
Dispersed islands
No extensive gas pipeline network
High cost of electricity
Political: generation in Eastern
Strong government-led efforts to increase the portion Indonesia
of gas for domestic use
Heightened government awareness on the need for
using LNG to transport gas
Government will to reduce local pollution and CO2
emissions
Market:
High price of diesel compared with LNG
Indonesian fuel subsidies are increasingly costly as
electricity demand grows
Need for distributed power generation
PLNs sales revenues and costs of supply by region in 2005 (in
Technical: US cents)
Proven technical feasibility

Important facilities such as FSRU soon to be online
Sources: Interviews, World Bank (2005)

5/10/2011
Small scale LNG is an option for supplying growing energy demand in
Eastern Indonesia
LNG is a viable alternative to diesel Small scale LNG import terminals

Phase 1 (2012)
power in Eastern Indonesia 1. Tg. Batu, Samarinda, East Kalimantan (25 mmscfd)
2. Batakan, Balikpapan, East Kalimantan (15 mmscdf)
3. Pasanggaran, Bali (25-30 mmscfd)
ARUN LNG 4. Pomala, Kendari, South Sulawesi (25 mmscfd)
Plant
Currently there is 808 MW of diesel

Phase 2 (2013)
5. Mataram, West Nusa Tenggara (15 mmscfd)
6. Banajarmasin, South Kalimantan (6 mmscfd)
power generation capacity in 33 Phase 3 (2015)

7. Gorontalo, North Sulawesi (6 mmscfd)
locations in Eastern Indonesia BONTANG

LNG Plant
8. Halmahera, North Maluku (60 mmscfd)
8
TANGGUH
7 LNG Plant
8 small scale LNG terminals are set 1
to be constructed by 2015 2
6 DONGGI-SENORO
4 LNG Plant
A small scale LNG milk run carrier

FSRU MASELA/ABADI
could carry LNG cargoes from one Proposed 3 5 LNG Plant
of the existing/planned LNG FSRU FSRU

plants/FSRUs Planned Planned
FSRU
Under construction
Figure 3: LNG plants and import terminals/FSRUs
Sources: DNV analysis, Petrominer, Directorate General of Oil and Gas, Pendawa (2011)

5/10/2011
Indonesia
Background
Opportunities
Risks

5/10/2011
DNV has performed cost-benefit analyses on two LNG supply chains
in Eastern Indonesia
Case Study 1
LNG storage &

Small-scale LNG ship Small-scale LNG terminal LNG truck regasification (Satellite
(10,000 12,000 m3) (Onshore or Offshore) plant)
Liquefaction plant
Case Study 2
Power Plant
FLNG
NG pipeline
Small-scale LNG ship Small-scale LNG terminal
(10,000 12,000 m3) (Onshore or Offshore)
Supply chain options have no one size fits all risks in each scenario varies and solutions have to
be customized to each locality

5/10/2011
Case study 1: LNG supplied along a milk-run by a combination of
small scale LNG carriers and trucks
Milk run scenario:

Originates from the Donggi Senoro LNG Lopana
plant Bitung
Delivered to 8 locations with small scale Gorontalo

LNG carriers, and/or trucks Kayu Merah
Luwuk
These power plants are currently
diesel based and have capacities of Donggi Senoro
LNG plant
between 7 to 56 MW
Poasia
Kendari
We assume in the future that:
Kolaka Wuawua
70% coal (as base load), and Kendari
30% diesel or LNG (as peak load)
Minimise LNG ship terminals, and use LNG truck transfer route Small scale LNG shipping route
Small scale LNG milk run distribution route from Donggi Senoro LNG plant
LNG trucks within ~100km radius
Sources: DNV analysis, Pendawa (2011), Google Earth Pro

5/10/2011
10
Det Norske Veritas AS. All rights reserved.
Case study 1: Unit costs of supplying LNG are driven by the volumes
being handled by the receiving terminals
The LNG supply costs are largely driven
by the volume going through the jetty & Cost of supplying small scale LNG to locations in Eastern Indonesia
receiving terminal
25 Kayu
Merah
Transport cost ($/mmbtu)

Current fuel costs (excl transport) are: 20 Gorontalo
Diesel: US$27.40/mmbtu
15 Lopana,
LNG: ~US$15/mmbtu Bitung
Difference between
diesel and LNG (2011)
10
The trend is for the price difference to
continue to increase 5 Kolaka,
Poasia Kendari,
IEA price projections Wuawua Kendari
0
0 50 100 150 200
At current prices this is an annualised
Luwuk Volume through jetty (m3/day)
savings of US$3.2 million per year for the (no ship
6 profitable locations needed)

5/10/2011
11
Case study 2: Demand creation for small scale LNG power generation
through captive power
Captive Power Installed Capacity
GW
Captive power is used at > 400 energy intensive and remote
50 industrial operations e.g. ferronickel smelting
45
Captive power plants usually have high capacities of
40
CP
>100MW made up of a combination of coal-fired base load
35 and diesel-fired peak load generation
30 Conversion of diesel to gas allows captive power users to
IPP
25 leverage small scale LNG distribution networks
20 LNG delivery to captive power plants would require
15 substantial investment in small scale LNG carriers carrying
PLN LNG from the nearest LNG plant
10
0
2007
Installed captive power capacity in Indonesia
Sources: IEA, USAID (2008), ABB (2007), US Commercial Service (2005), Ministry of Energy and Mineral Resources (2004)

5/10/2011
Case study 2: LNG delivered from the Donggi-Senoro LNG plant to
mining operations at East Halmahera
State mining firm Antam plans to install

260 MW to serve its proposed
ferronickel smelter in East Halmahera East Halmahera
170MW diesel
90MW coal Donggi Senoro
LNG plant
Diesel could be switched to LNG,
delivered with a 12,000 m3 LNG carrier
With LNG volumes of 100 Mm3/yr, the
supply costs are US$4.20/mmbtu
At current prices* this is an annualised
savings of US$26 million per year
Small scale LNG shipping route
Small scale LNG distribution route from Donggi Senoro LNG plant to captive power
plant in East Halmahera
*Current prices of diesel and LNG used in the model are
$27.4/mmbtu and $15/mmbtu respectively
Sources: DNV analysis, Google Earth Pro

5/10/2011
Indonesia
Background
Opportunities
Risks

5/10/2011
There are considerable risks involved in setting up a small scale LNG
supply chain in Indonesia that need close management attention
Risk type
Economic Commercial Technical Political
LNG Shipping terminal transfer terminal
S2 Gas shipping S1 Ship S3 Ship availability S5 LNG leakage S8 Flag

Small Scale Jetty and Truck Satellite
costs accessibility requirements

S4 Pollution S6 Environmental hazards
S7 High energy collisions

Supply chain element
JT1 LNG terminal JT2 Land JT3 Storage tank safety

costs availability
JT4 Jetty
accessibility
T1 Insurance T2 Gas losses T3 Road conditions T5 Traffic conditions T7 Local

requirements
T4 Resource capabilities T6 Emergency response
ST1 Satellite ST2 Land ST4 Storage tank safety ST5 Local
terminal costs availability requirements
ST3 Reliability of
supply

5/10/2011
The risks are prioritised based on their likelihood and consequence
(real life example)
Risks prioritisation Sx Shipping JTx Jetty & terminal
Tx Trucking Tx Satellite terminal
T2
S1 Ship accessibility T1 Insurance
S2 Gas shipping costs T2 Gas losses
JT1 T4 S8 S3 Ship availability Road conditions

T3
T1 Pollution
ST1 S4 Resource capabilities
T4
S5 LNG leakage
Likelihood
T5 Traffic conditions
S1 T6 T7 JT4 T3 Environmental hazards
S6
T6 Emergency response
ST3 ST5 Ship collisions
S7
Local
T7
requirements
S8 Flag requirements
ST1 Satellite
S3 ST4 T5 terminal costs
JT1 LNG terminal costs
S7 JT3 ST2 Land
Land availability availability
JT2
ST3 Reliability of
JT3 Storage tank safety supply
S2 JT2 ST2
ST4 Storage tank safety
JT4 Jetty accessibility
S4
ST5 Local
S6 S5 requirements
Consequence
Risks and Opportunities of Small Scale LNG Development in Indonesia 16
5/10/2011
Norwegian companies have strong experience & competence in small-
scale LNG
State-of-the-art Unique project Multiple companies in Total assessment
technology experience cooperation
Offshore LNG
facilities
Onshore LNG
facilities
Product transport
End-user distribution
Storage tanks
LNG-fuelled vessels
Yards
Project development
Cryogenics
Standards and
regulations
Source: DNV

5/10/2011
17
Indonesian small-scale LNG projects need to mitigate risks
by leveraging such experience
Small-scale LNG presents multiple risks that need close management at all
parts of the supply chain
In general, jetty and terminal costs, and relative fuel prices will be key uncertainties
No one-size-fits-all solution: multi-modal approach using LNG ships, LNG trucks, storage &
pipelines will be required
In Indonesia flag requirements, jetty availability and road conditions stand out
However, the relative importance of various other risks will vary with each project/location
It will be vital to ensure that necessary competence is employed throughout the supply chain
Leveraging the globally available best-practices & existing experience will

mitigate the risk as much as possible

5/10/2011
Summary: Opportunities exist for collaborations to overcome
challenges and succeed in small scale LNG in Indonesia
Small scale LNG has huge potential in Indonesia

Substituting diesel or HFO at suitable volumes will justify the investment because the
(increasing) price differential exceeds the transport costs
Many such opportunities exist in Indonesia, driven by geographical, political, economic and
technical factors
Captive power in particular represents a good opportunity

Eastern Indonesia has many energy-intensive, isolated mines currently using diesel or HFO
Eastern Indonesia has suitable supplies of LNG planned and proposed
There is substantial complexity and risk in setting up a small scale LNG chain
Partnering with experienced parties can help to mitigate this risk
Norwegian companies have a great deal of experience in this sector

5/10/2011
19
Safeguarding life, property
and the environment
www.dnv.com

5/10/2011
Appendices

5/10/2011
Supply: Indonesia will continue to increase LNG output from its proven gas reserves
Indonesia currently has 108.4 Tscf of proven conventional gas
reserves with the potential to increase by another 48.74 Tscf,
ranking as 14th largest in the world
At current production rates of approximately 9000 mmscfd,
these reserves will last for approximately 40 - 50 years
It is the second largest LNG exporter in the world, behind Qatar
Gas obtained from fields at East Kalimantan, West Papua and
Aceh are converted into LNG at nearby liquefaction plants,
namely Bontang, Tangguh and Arun respectively, accounting for
more than 50% of natural gas production in 2010
The Tangguh gas fields began production in 2009 to replace
dwindling output from Arun which has only three more years of
adequate gas reserves
Indonesias fourth LNG liquefaction facility in Central Sulawesi,
known as the Donggi-Senoro project, will draw from the nearby
Senoro-Toili Block and will produce LNG equivalent to Figure 2: Conventional gas reserves
approximately 250 mmscfd of gas, most of which to be exported
The Masela block in Maluku with more than 10 Tscf of gas is
being developed by Japans INPEX Corp. to produce LNG on a
floating terminal which is expected to be onstream in 2016
Sources: Ministry of Energy & Mineral Resources (2010), BP 2010

5/10/2011
Supply: CBM resources are vast and there are plans to produce LNG from CBM for
domestic use
Indonesia is estimated to hold 453.3 Tcf of coal

bed methane (CBM) resources, almost 3 times
its total conventional gas resources
Of these, 127.5 Tcf has been classified as
proven reserves
Gas produced from the first CBM blocks in East
Kalimantan could be processed into LNG from
2012 at the Bontang LNG plant to serve the
domestic markets in Java and Sumatra
Ephindo, one of the key developers of CBM in
Indonesia, estimates that CBM production will
reach 500 mmscfd by 2015
However, operational constraints such as land
acquisition rights, overlaps with coal work areas
and environmental management issues still
Figure 3: Coal bed methane resources
loom over the development of CBM
Sources: Ministry of Energy & Natural Resources (2010), Petrominer (2011)

5/10/2011
Supply: Foreign LNG imports are being considered to make up for domestic shortage
Indonesia will begin importing up to 607 mmscfd of LNG every year beginning in 2013 when the FSRUs in West
Java, East Java and Northern Sumatra are onstream to make up for shortfalls in domestic gas demand
Foreign LNG imports from Australia, Papua New Guinea, Iran and Qatar are being considered as much LNG
produced in Indonesia are locked up in long-term contracts with overseas buyers and are unavailable for domestic
use
Members of the Forum of Natural Gas Using Industries (FIPGB) including fertilizer, rubber, plastics, tire and cement
manufacturers have stated that the factors driving them to consider foreign LNG imports are:
a) Lack of indication from the government to provide gas supplies for domestic industries
b) Inadequate infrastructure supplying gas domestically
FIPGB members are currently facing a 200mmscfd gas supply shortage and plan to lobby the government to permit
a 500mmscfd FSRU to be constructed in Banten, West Java, to be operational by April 2012 for their consumption
Sources: Jakarta Post, Petrominer (2011)

5/10/2011
Transport: Gas pipeline networks are not well established in Eastern Indonesia and
there are plans to direct LNG cargoes to domestic terminals in the near future
Unlike in Java and Sumatra, construction of extensive gas

transmission pipelines in Eastern Indonesia is not feasible
as the relatively low gas demand does not justify the high
capital investment costs
LNG produced at the Bontang, Tangguh and Arun LNG
plants are mostly shipped to Japan, South Korea, Taiwan
and China under long-term contracts
LNG export from Arun is expected to cease by 2014 as its
gas supply gets depleted
Japan, South Korea and China are expected to remain top
export destinations to 2020 even though total export
capacity will be greatly reduced
By 2012, 200 mmscfd of gas from LNG produced at
Figure 4: Gas pipeline networks
Bontang will be directed to the new-built floating storage
and re-gasification unit (FSRU) in West Java and 8 small Dispersed islands with
scale LNG import terminals in Eastern Indonesia to cater to few gas pipeline networks
growing domestic demand
A similar amount of LNG is likely to be drawn from the
Tangguh plant for the Medan LNG FSRU in North Sumatra,
also to be completed in 2012
Sources: IEA (2008), National Development Planning Agency (2009)

5/10/2011
Demand: LNG exports to key markets in Japan, South Korea, Taiwan and China are
likely to decrease in order to satisfy growing domestic demand
Indonesia plans to halt LNG exports to foreign destinations

from the Bontang LNG plant, which accounts for 85% of LNG Export
Indonesias LNG output, by 2020 to divert gas supplies for
domestic use in electricity generation and fertilizer and 1.5E+09
petrochemical production
To keep the Bontang LNG plant operating over the longer 1.0E+09
mmbtu
term to benefit domestic markets in Java and Sumatra, the
government has pushed for greater local buy-in at major
existing gas fields operated by Total and are exploiting 5.0E+08
deepwater reserves in the Makassar Strait and nearby CBM
resources
0.0E+00
While much of the LNG output from Tangguh and the 2004 2005 2006 2007 2008 2009 2010
upcoming Donggi-Senoro and Masela LNG plants will be
exported, these will likely be insufficient to counter the Year
dwindling export output from Bontang, with exports to Japan
falling sharply from 1620 to 405 mmscfd between 2011 and Arun Bontang Tangguh
2015
Figure 6: LNG export
Sources: IHS

5/10/2011
Case study 1: Unit costs of supplying LNG are driven by the volumes
being handled by the receiving terminals
The LNG supply costs are largely driven

Location Natural gas Cost of supplying
by the volume going through the jetty & demand (m3/day) LNG($/mmbtu)
receiving terminal Luwuk 21 $1.74
The costs of supplying LNG are highest at
Bitung 151 $6.35
Gorontalo and Kayu Merah
Lopana 27 $6.74
The costs of supplying LNG are lower at
Bitung and Lopana which share a jetty/terminal Wuawua 64 $8.65
Kendari
Poasia 39 $8.92
Current fuel costs (excl transport) are: Kendari
Diesel: US$27.40/mmbtu Kolaka 19 $9.13

LNG: ~US$15/mmbtu Gorontalo 57 $17.15
Kayu 48 $20.03
Merah
The trend is for the price difference to Cost of supplying small scale LNG to locations in Eastern Indonesia
continue to increase
IEA price projections

5/10/2011
27
Putting standards in place to ensure safe and sustainable operations
Many standards for the LNG industry already exist, but
they are fragmented, and need to be aligned
internationally
Several task groups of ISO TC 67 (Materials, equipment

and offshore structures for the petroleum, petrochemical
and natural gas industries) have been formed to look
into issues such as:
Risk assessment in design of onshore LNG

installations
Materials for LNG equipment
LNG storage tanks
LNG ship to shore interfaces and port operations
Supply of LNG as fuel to ships Figure 14: ISO TC 67 country members
Countries active in this effort include Brazil, Belgium,

Canada, China, France, Indonesia, Japan, Korea,
Netherlands, Norway, Qatar, UK and USA
Singapore (SPRING) considering P-membership in TC

67 and WG 10 as part of work of the newly formed
Energy Standards Committee

5/10/2011

Opportunities and Risks of Small Scale LNG Development

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Opportunities and Risks of Small Scale LNG

DET NORSKE VERITAS

Risks and Opportunities of Small Scale LNG Development in Indonesia

Banks and finance

Oil and gas

Power generation & transmission

Risks and Opportunities of Small Scale LNG

Risks and Opportunities of Small Scale LNG Development in Indonesia

Cutting edge project investigating

Small scale LNG market study and

Assessment of LNG logistics chain

2011 assessment of the Southeast Asian

Opportunity assessment of the

Risks and Opportunities of Small Scale LNG Development in Indonesia

Proven technical feasibility

Sources: Interviews, World Bank (2005)

Risks and Opportunities of Small Scale LNG Development in Indonesia

LNG is a viable alternative to diesel Small scale LNG import terminals

Currently there is 808 MW of diesel

power generation capacity in 33 Phase 3 (2015)

locations in Eastern Indonesia BONTANG

8 small scale LNG terminals are set 1

A small scale LNG milk run carrier

could carry LNG cargoes from one Proposed 3 5 LNG Plant

of the existing/planned LNG FSRU FSRU

Figure 3: LNG plants and import terminals/FSRUs

Risks and Opportunities of Small Scale LNG Development in Indonesia

Risks and Opportunities of Small Scale LNG Development in Indonesia

LNG storage &

Risks and Opportunities of Small Scale LNG Development in Indonesia

Milk run scenario:

Delivered to 8 locations with small scale Gorontalo

30% diesel or LNG (as peak load)

Sources: DNV analysis, Pendawa (2011), Google Earth Pro

Risks and Opportunities of Small Scale LNG Development in Indonesia

Transport cost ($/mmbtu)

Risks and Opportunities of Small Scale LNG Development in Indonesia

Risks and Opportunities of Small Scale LNG Development in Indonesia

State mining firm Antam plans to install

Sources: DNV analysis, Google Earth Pro

Risks and Opportunities of Small Scale LNG Development in Indonesia

Risks and Opportunities of Small Scale LNG Development in Indonesia

S2 Gas shipping S1 Ship S3 Ship availability S5 LNG leakage S8 Flag

costs accessibility requirements

S7 High energy collisions

JT1 LNG terminal JT2 Land JT3 Storage tank safety

T1 Insurance T2 Gas losses T3 Road conditions T5 Traffic conditions T7 Local

Risks and Opportunities of Small Scale LNG Development in Indonesia

S1 Ship accessibility T1 Insurance

S2 Gas shipping costs T2 Gas losses

JT1 T4 S8 S3 Ship availability Road conditions

Risks and Opportunities of Small Scale LNG Development in Indonesia

Leveraging the globally available best-practices & existing experience will

Risks and Opportunities of Small Scale LNG Development in Indonesia

Small scale LNG has huge potential in Indonesia

Captive power in particular represents a good opportunity

Risks and Opportunities of Small Scale LNG Development in Indonesia

Risks and Opportunities of Small Scale LNG Development in Indonesia

Risks and Opportunities of Small Scale LNG Development in Indonesia

Sources: Ministry of Energy & Mineral Resources (2010), BP 2010

Risks and Opportunities of Small Scale LNG Development in Indonesia

Indonesia is estimated to hold 453.3 Tcf of coal

Sources: Ministry of Energy & Natural Resources (2010), Petrominer (2011)

Risks and Opportunities of Small Scale LNG Development in Indonesia