JAKARTA – Indonesia’s mining giants are rallying into coal gasification projects as the country’s largest export markets and global investors move toward a carbon-neutral future.
Coal gasification can be used to create a range of fuel products with lower emissions, an important consideration for investors who are increasingly concerned about environmental, social and physical issues, or ESG. The moves also go hand in hand with the Indonesian government’s effort to develop the downstream industry, rather than just exporting raw natural resources.
Southeast Asia is the world’s largest coal exporter, delivering 455 million tons, or 31.7% of world exports, in 2019, according to Energy Agency International.
Tambang Batubara Bukit Asam, known as PTBA, in December announced its partnership with state-owned oil and gas company Pertamina and U.S. chemical industry company Air Products on a $ 2.1 billion project to convert coal to dimethyl ether (DME) ).
PTBA plans to begin construction of its DME-coal processing facility near its mine in Tanjung Enim, South Sumatra Province, in the middle of this year.
“The coal-to-DME project is one of PTBA’s key strategic initiatives in implementing [a] business transformation from a former conventional mining company to an ‘off-coal’ company, “CEO Arviyan Arifin said at a significant signing ceremony for the partnership agreement with Air Products and Pertamina on 10 December.
“In addition to this project, hopefully it can be a good starting point to support national energy security,” said Arifin. “We hope our coal-to-DME project will inspire other coal companies in it.” Indonesia to do the same. “
Commercial activity is planned to begin in 2025, with a production capacity of 1.4 million tons of DME per year. Six million tonnes of coal feed the plant each year – around a fifth of the miner’s production output in 2019.
Coal gasification involves chemical conversion to gas synthesis with a variety of end products – including DME, hydrogen and methanol.
DME is a highly flammable gas and can be used in place of propane in liquefied petroleum gas (LPG), and in place of diesel fuel in transport. It is recognized as an environmentally friendly fuel because it produces much less carbon dioxide and nitrogen oxides when burned in power stations and elsewhere than coal.
Bumi Resources, the largest coal producer in Indonesia, has a different project. The Kaltim Prima Coal subsidiary is working with Ithaca Facilities and Air Products to build a coal-to-methanol facility in East Kalimantan Region.
Air Products will invest approximately $ 2 billion “to build, own and operate the facility which is expected to go ahead in 2024.”. They plan to add the methanol to the government’s biodiesel program, Air Products told Nikkei Asia last month.
Bumi is also conducting a feasibility study for a second coal-to-methanol project with a target for delivery in 2025.
Indonesia’s other major coal company, Adaro Energy, is examining a coal gasification plan. Dharma Djojonegoro, vice president of the Adaro Power subsidiary, told Nikkei Asia that it was “open to the ability to extract methanol, olefins or others according to market needs.” Olefins are the products basic for plastic production.
If all projects go ahead, the energy ministry estimates that they will use about 20 million tons of coal as live stocks each year – less than 5% of Indonesia’s coal production target last year.
In addition, other local coal miners are preparing pilot projects for underground coal gasification – in which the conversion is done underground. They include Kideco Jaya Agung, Indominco and Medco Energi Mining Internasional, the ministry announced in November.
Indonesian miners are pushing into such projects with the global turnaround against coal, exemplified by the growing pressure on ESG.
A new sense of urgency has emerged after promises made by China, Japan and South Korea last year – Indonesia’s main coal export markets – to go carbon neutral by 2050 to 2060. These countries ’commitments are contributing to growing ESG concerns from global investors providing insights into the coal industry over the long term. As a result, there were fewer funding options for new coal projects.
In nearby Australia, the world’s second largest coal exporter after Indonesia, two major mining groups are moving away from coal. Rio Tinto last sold its coal assets in 2018 and is now targeting iron, aluminum and copper ore. Meanwhile, its mining competitor, BHP, has decided to focus on higher cooking coal – used mainly in steelmaking – and reducing the amount of coal. thermal that is commonly used in power plants.
The Indonesian government is offering incentives to coal miners to find derivative industries for their goods, including exemption from royal payments, tax holidays and automatic extension of mining licenses. © Reuters
The PTBA executive said last year that only some Chinese banks were still willing to fund coal-fired power plant projects a few years ago, but then China in September promised to become carbon neutral. The situation has prompted the company to launch “beyond coal” strategies including not only the gasification projects but also a plan to build micro-scale solar panels in old local mining sites and airports.
Coal gasification is a decades-old technology that has been used on a large scale in China in recent years, noted Rory Simington, chief analyst for Wood Mackenzie’s Asia-Pacific thermal coal study. “Coal gasification … is attractive to China because they have coal and do not have to use other life stocks such as gas or oil, which would be largely imported. Ditto for Indonesia,” he said.
The International Energy Agency said in a report in December that coal-fired conversion projects announced in China would produce more than 500 million tons of coal annually, if eventually built.
The Indonesian government supports gasification plans to reduce carbon emissions and develop its international trade policy.
President Joko Widodo signed an order in November adding him to the government’s list of key strategic projects. It offers encouragement to coal miners who are committed to building derivative industries, including exemption from royalty payments, tax holidays and automatic extension of mining licenses.
“I want solutions to address the slow development of the coal derivatives industry because we have been exporting crude coal for so long,” the president said. immediate termination. “
Indonesia in recent years has been working on developing its downstream mining industry to cut the country’s confidence in exports of low-value raw minerals and generate more revenue from materials. with added value.
Jakarta is also strong about using DME as a substitute for LPG, with domestic consumption of the latter growing as 70% of the demand comes from imports. “If we can replace LPG, we will make huge savings in forex stores,” Energy Minister Arifin Tasrief told reporters on January 7th.
However, the PTBA coal gasification project has sparked debate, especially after a U.S.-based think tank, the Institute for Energy Economics and Financial Analysis, published a report in November estimating that the DME plant lost recommend $ 377 million annually.
“The total cost per ton of the DME plant is $ 470 / ton – nearly twice what Indonesia pays for LPG imports,” IEEFA energy finance analyst Ghee Peh wrote in a press release. “While technically feasible … the DME project is not economically viable. [It] That doesn’t make economic sense. “
Researchers of Indonesia’s energy ministry immediately came in defense of PTBA, arguing that IEEFA used last year’s LPG and coal prices in their assumptions and do not show real price movements with the post-application coronary virus pandemic. Push down LPG.