Why we must tap into Indonesia’s giant gas market – Richard Court, Chairman

With patience, Australia can start exporting gas to Indonesia
by Richard Court, RISC Chairman, former Premier of Western Australia and contributor to Australian Financial Review

At the Perth LNG 18 conference in April, Woodside announced a heads of agreement with state-owned Indonesian gas company Pertamina to supply between 500,000 and 1 million tonnes of LNG per annum for 15 to 20 years starting in 2019.

Woodside correctly recognised that not only is Indonesia a rapidly growing market for gas, it will require a very different approach, with the logistics involved in a country of thousands of islands.

It always amazes me that our closest neighbour is also one of the least understood by many Australian companies and that needs to change rapidly if we are to participate in its growth story.

It is puzzling to many of Indonesia’s business and political leaders that the Japanese, Chinese, Korean, Americans, and so on are well-established, major players in this market with well-recognised brands, but Australia has had its focus elsewhere. There are some notable exceptions, particularly in the area of agriculture, but by and large this important market has suffered our neglect.

President Joko Widodo’s government is reform-minded and is willing to change the oil and gas regulatory environment which in many areas is no longer relevant for its future requirements.

Widodo is committed to developing Indonesia’s East, encouraging significant infrastructure projects to be more in balance with what has occurred in the more populous West. A key part of this strategy is to ensure that there is adequate provision of electricity.

The challenge for energy providers covering such a large number of islands over a great distance, is to develop a logistics chain that enables the gas and electricity to be distributed. This will require Australian companies to better understand shipping, storage facilities, pipelines, the form of gas required, electricity grids and pricing structures.

A good example of this is the significant size of the LPG market in Indonesia, which is growing at around 13 per cent each year. This is an area where many Australian companies have significant experience servicing our own regional markets.

Australians know Bali well from a tourist perspective, but the recent announcement by Japanese company Mitsui O.S.K. Ltd (MOL) that it has a joint venture with an Indonesian company to supply LNG to the Indonesian island explains an innovative approach to meeting its electricity requirements.

The logistics train involves coastal LNG shuttles, a floating storage unit, a floating regasification unit and a pipeline to a power plant.

Australian companies need to focus on the opportunities and start developing relationships with the relevant Indonesian partners to gain entry – a meaningful local presence is critical.

Thirty per cent of Indonesia’s current production comes from licences that expire within five years and 61 per cent of production from licences expiring in the next 10 years. The Widodo government realises that the sector is watching closely how the expiration of these 50-year production sharing contracts will be handled.

Australian companies targeting Indonesia will require a level of patience, but with a reform-minded government and with an Energy Minister in Sudirman Saidho who is held in high regard, the government knows that it needs to make the investment environment more attractive as many large projects are stalled.

A country with 250 million upwardly mobile people and with an economy growing at 5 per cent simply opens up great opportunities for Australian companies with expertise in these areas to provide gas, logistical and project support.

Commitment and patience will pay off in engaging with our nearest neighbour – we just need to give it the attention it deserves.

Click here for online AFR article

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