INTERVIEW-Indonesia to wean off oil, but biofuel use limited

By Ed Davies and Muklis Ali

JAKARTA, Nov 30 (Reuters) - Indonesia aims to slash the use of oil in its energy mix to around a fifth from half now, but the main substitutes will be gas and coal despite efforts to promote renewable sources, the country's energy minister said on Friday.

The resource-rich tropical nation has been pushing the use of biofuels made from sources such as palm oil, but Energy Minister Purnomo Yusgiantoro said the government expected only 5 percent of energy needs to come from biofuel by 2010.

"Of course we would like to develop the renewable energy, but you know renewable energy development cannot be just very quick," Purnomo said in an interview.

Indonesia plans to cut the use of costly oil by 2025 to 20 percent. Under its energy blueprint, the share of coal and gas would rise to about 30 percent each and renewable sources such as biofuel and geothermal would make up the remaining 20 percent.

Indonesia's environmental credentials are likely to come under scrutiny next month, when the country hosts a UN climate change meeting in Bali of about 190 nations.

Environmental groups are concerned about forests being destroyed to make way for palm oil plantations, as well as potential emissions from using more coal in power stations.

Purnomo said only 10 percent of Indonesia's CO2 emissions came from energy, with 90 percent from deforestation.

Indonesia has about 10 percent of the world's tropical rainforests and wants richer nations to help pay to retain forests through a carbon trading scheme it hopes to push in Bali.

"I think the battlefield for us now is to cease, to stop the deforestation and do the reforestation," said Purnomo, who has been energy minister since 2000.

CBM PRODUCTION-SHARING DEALS

He played down concerns about losing lucrative cash generated from exports by consuming more coal and gas domestically, pointing to huge reserves of CBM (coal bed methane).

Indonesia was the world's largest exporter of liquefied natural gas for years until 2006, but as output from its ageing fields declined and more gas has been piped to domestic consumers, Qatar snatched the top spot.

CBM, typically trapped in the cracks of coal seams, is relatively easy to produce at shallow depths and emits less greenhouse gas when burned than coal.

"We are going to sign several production-sharing contracts to develop CBM gas this year," he said, adding that Indonesia has about 400 trillion cubic feet of CBM reserves.

Indonesia, which lies on the so-called "Pacific Ring of Fire", also has huge potential from geothermal sources, but the high cost of exploiting it has so far led to only a few projects.

The minister said there were no plans to raise heavily subsidised oil prices despite the distortions they cause in the domestic market and the big strains on government finances.

Indonesia is Asia Pacific's only OPEC member but is one of the smallest producers. It has to spend billions of dollars on oil subsidies and importing oil products. "If we talking about subsidy, really it's related to politics, related to social burden," he said.

Cuts in the level of subsidy have sparked riots in the past, and analysts say that with elections slated for 2009, it is unlikely the government will make that move.

He said authorities were, however, looking at the idea of introducing 90-octane gasoline to be used by motorists that could replace some of the current subsidised 88-octane grade.

With electricity also artificially cheap in Indonesia, the minister said authorities were also considering a "disincentive tariff" that would charge consumers at a much higher rate above a certain consumption level. (Additonal reporting by Sara Webb)