Indonesia faces potential gas supply shortfall, Wood Mackenzie warns

Indonesia, Southeast Asia's largest gas market, may face domestic gas supply shortfalls in the coming years, according to Wood Mackenzie's latest analysis.

Energy security and affordability have become paramount, particularly in Asia, where gas will play a central role in increasing access to affordable energy while supporting a transition to more sustainable sources. However, the country's ambitious production targets of 1 million b/d of oil and 12 bcfd of gas by 2030 are at risk due to declining domestic gas supply. Wood Mackenzie's research highlights the urgent need for clear, consistent, long-term policies to attract investment and accelerate the development of discovered gas resources.

"Indonesia has sufficient resources to meet existing gas demand, but it needs to plan for the future”, said Joshua Ngu, Vice Chairman – Asia Pacific at Wood Mackenzie. “Declining domestic gas supply due to the depletion of existing fields remains a major concern. Attractive investment policies, that can support the discovery and rapid development of new resources, are required to prevent a domestic gas crisis and maintain the country's position as an international gas provider."

Wood Mackenzie's analysis shows that Indonesia's gas demand, including contracted exports, is expected to remain stable at around 6 billion cubic feet per day until 2035. But Indonesia could face a gas deficit by 2033 without the development of new supply. In this case, Indonesia will become more dependent on higher-cost LNG imports. Alternatively, it could bolster support for low-cost coal, which competes against gas in the power sector despite its emissions disadvantage. However, gas remains a crucial feedstock for industrial use.

The analysis highlights that Indonesia has no shortage of gas resources to develop, with over 35 tcf of resource held across the Abadi, Geng North, Tangkulo and Layaran discoveries. The Indonesia Exploration Forum estimates over 30 bnboe of yet-to-find resources in the North and South Sumatra Basins and the Northeast Java Basin alone. However, US$50 billion will be needed to develop these resources and others if Indonesia is to achieve its ambitious goal of producing 12 bcfd by 2030.

Andrew Harwood, Vice President, Corporate Research, Upstream & Carbon Management, at Wood Mackenzie adds: "Developing new gas fields requires time and investment, particularly for larger discoveries far from existing infrastructure and demand centres. A business-friendly environment can accelerate the timeline for bringing new gas supply onstream."

To prevent a gas crisis, Wood Mackenzie recommends Indonesia focus on rapidly monetising its undeveloped resources and continuing to attract investment for exploration. To achieve this, requires:

• Regulatory assurance for contract sanctity that underpins and honours the terms of the investment case at the final investment decision. 

• Adaptive gas pricing to incentivise investment on a project-by-project basis, that reflects both buyer requirements and the risks and commitments taken on by producers. 

• Flexibility for developers where buyers honour long-term take-or-pay agreements and developers can sell to other parties domestically or internationally if buyers cannot accept offtake volumes.  

Aruna Mannie, Director Consulting, Upstream & Carbon Management at Wood Mackenzie, concludes: "Indonesia must implement the right policies and incentives to remain competitive within international portfolios and maintain investment appeal for exploration. Many International players already operate in the country and have access to the capital and technical expertise required for large-scale infrastructure and development projects. By ensuring regulatory assurance, adaptive gas pricing, and flexibility for developers, Indonesia can secure a robust gas future and prevent a domestic gas crisis.”

The analysis emphasises the importance of balancing domestic energy security with maintaining Indonesia's position as an international gas provider. The country's ability to attract investment and accelerate resource development will be crucial in determining its future gas supply landscape.