Indonesia's coal gasification programme needs subsidy -experts

JAKARTA, Nov 25 (Reuters) - Indonesia would need to subsidise the coal-derived substitute that it has hung its hopes on to reduce its import bill for liquefied petroleum gas (LPG), industry experts told Asia’s biggest coal industry event said on Wednesday.

The government wants to cut LPG imports, while optimising use of domestic coal assets, and creating jobs in a downstream coal industry. Just last month, President Joko Widodo urged relevant ministers to accelerate plans to build plants for gasification, liquefaction and upgrading coal.

Unless the production of dimethyl ether (DME), the substitute derived from coal, is subsidised, the government should look at other ways to cut consumption of LPG, experts said.

“It is better to turn households over to using electric stoves, because DME will not be feasible without a government subsidy,” Joseph Pangalila, vice president director of Cirebon Power said at the virtual Coaltrans Asia conference.

The Institute for Energy Economics and Financial Analysis estimated earlier this month the DME from a plant proposed by state coal miner PT Bukit Asam would cost $470 per tonne, nearly twice the price Indonesia paid for LPG imports.

Bukit Asam has partnered with US Air Products and Chemicals Inc for the $2.1 billion coal gasification project. The plant is expected to start commercial operation in 2024 to produce 1.4 million tonnes of DME from 6 million tonnes of coal.

Dharma Djojonegoro, deputy chief executive of PT Adaro Power, said at the same conference that the economics of gasification projects were “in question”.

Indonesia’s consumption of LPG is expected to rise from about 7 million tonnes in 2019, of which 73% was imported, to 9.5 million tonnes by 2025, energy minister Arifin Tasrif told the conference earlier this week.

The government offers zero royalty charge to miners that invest in downstream projects following a recently passed law. But it could still be a “hard sell” for investors trying to persuade global banks to provide financing for coal projects. (Editing by Simon Cameron-Moore)