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.