Industries switching away from oil for energy

Industries switching away from oil for energy

Berni K. Moestafa, The Jakarta Post, Jakarta

For decades oil has driven the country's growth. But with the
government cutting back on fuel subsidies, more industries are
seeking cheaper energy alternatives, with gas leading the pack in
both demand and supply.

Industries knew that the days of cheap fuels were over when
the government last year began to peg fuel prices at market
levels.

The government expects to phase out fuel subsidies altogether
by 2004. For now, industries still enjoy fuels at 75 percent of
international market prices.

The director general for electricity and energy development at
the Ministry of Energy and Mineral Resources, Luluk Sumiarso,
said industries were already shifting to alternative energy
sources.

"Demand for other energy sources is rising, particularly for
gas," Luluk told The Jakarta Post over the weekend.

Industries account for about 20 percent of the country's total
fuel consumption.

And although some industries depend more on electricity sold
by PT PLN, the state-owned electricity company relies heavily on
fuel for its power plants. They absorb about 10 percent of the
country's fuel consumption.

With an upswing in the economy, demand for electricity has
surged, and PLN too is looking for energy sources other than oil
to fire its power plants. Fortunately, the country is rich in
energy options.

Indonesia is a major gas producer and a pioneer of liquefied
natural gas (LNG) exports, with main markets in Japan and South
Korea. The country is also one of the world's largest coal
producers.

PLN and independent power producers are increasingly using gas
or coal to power their generators.

Less developed, but nonetheless still with possibilities in
the future, is renewable energy which draws its power source from
natural heat and movement.

Geothermal steam and sun rays produce heat; while water and
wind generate movement.

Of these, geothermal generated electricity has advanced the
most. Seven operating geothermal power plants are producing
about 800 Megawatts (MW) of power across the country. Five other
plants are being developed in Java, Bali, Sumatra and Sulawesi.

The Indonesian Geothermal Association estimates that the five
new geothermal power plants will yield over 400 MW in additional
electricity by 2005.

But aside from geothermal energy, other alternative energy
sources are developing less briskly due to the small power output
they yield and geographical difficulties.

The government, however, is aiming to promote the enhancement
of alternative energy sources through what Luluk calls
Distributed Power Generators (PSKs), which have a modest capacity
of at least 1 MW.

He said the PSKs would be located in various parts of the
country where an energy source is capable of producing 1 MW.

"We're talking about small ones, say waterfalls or geothermal
steam, wherever we find them," he said, while stressing that
these possible energy sources should also be near enough to reach
consumers.

But of all the alternatives to oil, gas is the most promising
with new gas reserves sprouting across the country.

About US$2.95 billion is needed to finance the construction of
new pipelines aimed at meeting growing domestic gas demand,
according to state-owned gas company PT PGN.

"More and more industries are looking at gas as a substitute
for oil," said WMP Simandjuntak, president director of PGN.

There are two reasons for this interest in gas, he said. One
is that oil prices are increasing, and the second is that in the
long run gas is cheaper despite its initial investment costs.

For now, the price of gas itself remains slightly higher than
the price of subsidized fuels, though the gap is narrowing.

But with a growth of just 5 percent a year, gas consumption is
still growing at a slower rate than oil, Simandjuntak said.

A poor gas distribution network is another obstacle in getting
major companies to switch from oil to gas.

To overcome this, he said, PGN plans to construct a web of new
pipelines linking gas reserves in South Sumatra and East
Kalimantan with Java's industrial centers.

Constructing this web would require an investment of about
$2.2 billion.