Marko Lackovic, Kar Min Lim – Southeast Asia faces a pivotal moment in its shared regional energy future. As the largest economy and regional emitter, Indonesia will be critical in steering the path ahead.
In Boston Consulting Group's (BCG) analysis, "Can Gas Be Green? The Role of Gas in Southeast Asia's Climate Transition", we look at how this remarkable transition period could radically shift the regional energy paradigm and how countries, companies, and decision-makers now face a defining moment in their respective energy futures.
Southeast Asia is a vibrant and growing region with surging energy demand. Electricity demand has tripled over the last two decades, supported by a six-fold increase in coal-fired generation. On the current trajectory, electricity demand is expected to triple further by 2050 as rapidly developing economies seek to meet growing residential and industrial needs.
Numerous nations across Southeast Asia have now put in place net-zero commitments, seeking to mitigate 1,700 metric tons (Mt) of annual regional carbon emissions. Current commitments put Southeast Asia on track to abate 60 percent of emissions by 2060 – behind the 80 percent of emissions projected to be abated globally by 2040. Indonesia has committed to achieving net zero by 2060, marking a significant milestone in national energy policy.
A journey beyond fossil fuel
Indonesia's power consumption is expected to reach 301 terawatt hours (TWh) in 2022, with forecast growth of around 5 percent annually to 2030, one of the highest in the region.
Power demand is primarily met by coal today, which accounts for roughly 62 percent of the projected power demand in 2022, and 50 percent of the current energy mix – the highest share of any Southeast Asian nation. Any effective strategy to mitigate overall emissions must wrestle with the dilemma of phasing out coal.
Indonesia has announced a moratorium on new coal plants from 2023, an essential step for this major coal-producing nation. State-owned utility, Perusahaan Listrik Negara (PLN), has announced that it is in discussions with investors to retire almost 7GW of coal a decade ahead of previous schedules.
In this context, gas could offer a vital transition opportunity, with Indonesia home to an estimated 38 years of reserves at current production rates – although this surpasses the net-zero threshold.
Indonesia now faces a critical phase of its transition as it explores how to leverage evolving gas technologies and low-carbon innovation. With the right strategy in place, this shift could accelerate necessary energy transition targets, with new technologies unlocking low-carbon economic opportunities for the nation.
Achieving Southeast Asia's expected energy demand growth will lead to significant additional imports of fossil fuels and, consequently, CO2 emissions under current policy commitments. This puts the region, and Indonesia specifically, on track to become a net gas importer by the end of the decade.
Gas provides a path to bridge the transition from polluting coal to a more widespread renewable energy landscape as nations seek to balance the energy trilemma of affordable, secure, and sustainable power. Gas generates between 40-80 percent of the CO2 emissions per unit of energy compared to coal and offers an increasingly cost-competitive alternative.
A comprehensive regional switch from coal to natural gas could see CO2 emissions in power generation falling by 3,000 megatons (Mt) to less than 700 Mt CO2 and below 200 Mt if capture and storage (CCS) technology is implemented.
Managing a changing future of gas
With rapid changes in the energy landscape, emerging gas technologies offer vital flexibility to the region's energy journey. Innovations in carbon capture, utilization, and storage (CCUS), expanding hydrogen technologies, and growing biogas penetration open up new transition potential, making the existing gas infrastructure future-proof.
CCUS will play a particularly critical role in energy ecosystem decarbonization, mitigating emissions from extraction through processing to power generation. CCUS has the potential to remove up to 90 percent of CO2 from gas combustion in power plants, amplifying the low-carbon credentials of this attractive transition fuel.
Today, the region's energy industry produces around 20 million tons per annum (Mtpa) of CO2 emissions, largely due to raw gas processing for export.
CCUS offers the chance to mitigate these emissions by taking advantage of abundant geological storage resulting from legacy fossil fuel extraction in nations such as Indonesia, providing an accessible and cost-effective carbon storage option at scale. Pilot test cases have already been launched in Indonesia, with plans to capture 150 tons of CO2 daily from Central Java's Gundih gas processing plant project.
Evolving hydrogen technologies provide a further synergy with the region's existing energy infrastructure, providing a path to retrofit gas power plants to use green hydrogen and to leverage gas pipelines for hydrogen transport.
Besides green hydrogen, increasing the adoption of biogas offers another path to ensure that deployed gas infrastructure remains future-proof. Indonesia's palm oil industry – which, together with neighbor Malaysia, accounts for 90 percent of total production and generates over 126 million tonnes of palm oil mill effluent (POME) waste each year – offers fertile resources for biogas production.
Given its significant and expanding energy demand, committing to a low-carbon gas transition will likely be essential to meeting Indonesia's baseload transition demands while phasing out polluting coal technologies. Developing and modernizing gas and LNG infrastructure will be important in the near- to medium term.
While further investment is required to pivot to a fully-decarbonized energy landscape, evolving and developing this gas infrastructure provides an opportunity to robustly leverage these low-carbon gas technologies to build a more sustainable energy landscape.
The potential to deliver reliable and lower carbon-distributed energy solutions through these evolving gas technologies could prove particularly attractive in a nation comprised of over 17,000 islands which may face challenges in developing fully integrated grid infrastructure.
Indonesia has made bold commitments to push towards net zero, but achieving that ambition will require a significant shift in the current energy dynamic. Choosing the right strategy to accelerate these efforts must navigate supply and price market risks, financing risks, the accelerating nature of technology adoption, and complex national and intra-regional policy and societal risks.
With investment in the right transition technologies, Indonesia could transform its low-carbon opportunities, leverage the skills and knowledge of an established industry workforce, significantly reduce emissions, and unlock the necessary energy resources to power the nation.
[Marko Lackovic is the managing director and partner at Boston Consulting Group, a multinational consulting firm. Kar Min Lim serves as a principal in the consulting firm.]