Nithin Coca – Indonesia's plans to develop a coal gasification industry have been thrown into doubt following the withdrawal of a major foreign investor.
During an investor call in late March, U.S.-based Air Products and Chemicals, a leading provider of coal gasification technology, confirmed it had withdrawn from all of its projects in Indonesia, including a planned facility in Bengalon, East Kalimantan province, and a $2.3 billion plant in Muara Enim, South Sumatra province, that broke ground in early 2022.
The news, less than a year and a half after the investment deals were signed, is a stunning setback to the country's ambitious plans to turn coal into dimethyl ether (DME) and create new market demand for domestically mined coal.
"The timing was quite surprising," said Andri Prasetiyo, program manager at Trend Asia, an Indonesian nonprofit that advocates for accelerating the transition to clean energy. "The Indonesia government claimed the project was ongoing, as a national strategic project."
Coal gasification is a century-old technology in which coal is converted into a gas that can then be used for industrial or transportation purposes. DME made from Indonesia's coal-to-gas plants would, in theory, be used as an alternative fuel in industrial, chemical or transportation applications, replacing imported liquefied petroleum gas (LPG).
The economics of coal gasification in Indonesia have been challenging since the beginning, and rising inflation has only made matters worse, said Ghee Peh, an energy finance analyst at the Institute for Energy Economics and Financial Analysis. "Since they signed the deal in 2021 until now, interest rates have gone up," Peh said.
He added he believes that made Air Products' already narrow return even less lucrative. In its statement, Air Products said it would be focusing on energy transition opportunities, including for "blue and green hydrogen projects."
Whether this will impact another ongoing coal gasification project in Meulaboh, a city in Indonesia's Aceh province, is unclear. That project, announced in 2021, is being led by Indonesia's Powerindo Cipta Energy and state-owned China National Chemical Engineering Corporation.
According to Prasetiyo, the Indonesian government so far maintains that the Muara Enim project will continue. "They are giving a sense [there are] many companies and financiers that want to support it, when in fact it will be a struggle to find someone who will support this project," Prasetiyo said.
One source from the Ministry of Energy and Mineral Resources told the media that an "entity from China" may be interested. The government has also expressed confidence that another investor will replace Air Products. Whether that will actually happen remains unclear.
"There are no specific details about the Chinese involvement, so we don't know if that is true," Prasetiyo said.
Cherelle Blazer, the senior director of U.S.-based environmental nonprofit Sierra Club's international climate and policy campaign, said she's hopeful that Air Products' sudden withdrawal means that no U.S. company or investor will ever again consider any overseas coal projects.
"Air Products' withdrawal from this project is another clear indication that coal's days are numbered," Blazer said. "This plant is just another in a growing list of coal projects that are too expensive, inefficient, and outdated to be built or continue to operate. There is simply no justification for building any coal project anywhere."
With most global investors exiting coal, including U.S.-based Citibank, Japan's Sumitomo Mitsui Financial Group, and the state-backed Japan Bank for International Cooperation, alongside a push by investors to stop financing of fossil fuels projects, it's unclear if any non-Chinese investors would still be interested in this project. Peh said it would only work under unique circumstances.
"They need to find someone who is willing to lose money to do this project," Peh said. "If somebody is willing to burn $500 million a year for 10 years, then the project will work."