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LNG to West Java: A Strategic Project for Indonesia's Future
Indonesia has been a leader in the LNG business but times are changing. The regional oversupply of gas relative to demand and the uncertainties created by new regulatory changes present Indonesia with some important challenges. However, changing times are also stimulating new opportunities. Indonesia's new Oil and Gas Law, which opened the downstream sector to foreign investment, have made the LNG to West Java (L2J) project possible.
The completion of a technical feasibility study and a joint PLN-BP commercial study concluded that LNG is a viable and competitive fuel supply for West Java power. LNG can compete with pipeline gas, displace expensive petroleum fuels, enhance energy security of supply and bring an environmentally preferred solution over alternatives. A strategically located West Java regasification terminal will supply fuel to a rapidly growing Java power market. Proximity to several sources of LNG supply makes it an attractive future market and provides an opportunity to increase demand from Indonesia LNG supply projects such as Tangguh, where there are sufficient gas reserves to support up to an 8-train LNG project. It could also provide a market for older LNG projects, where spare capacity may arise as older contracts expire. Beyond monetisation and fuel for power, L2J will also play an important role in socio-economic and political issues within Indonesia by stimulating foreign direct investments in Indonesia and by helping to catalyze renewed interest by IPP developers in Indonesian power.
L2J faces many challenges including the need to secure finance in a new and untested regulatory regime. All parties involved in Indonesia's future will need to play a role in resolving such issues. The reward will be the creation of a critical infrastructure that could become the heart of Indonesia's energy future.
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