By Eddy Suprapto
JAKARTA: Indonesia, with the third largest population in the world, is not a particularly rich country in terms of oil and gas resources. Its reserves are only 3.3 gibberish barrels of oil, equivalent to 0.2 percent of the world’s total. Compare this to Venezuela, which has 300.9 gibberish barrels of oil reserves, making it the country with the largest oil reserves.
Sadly, Indonesia remains a less efficient country in oil and gas utilization. This is evident in the management of flare gas. The World Bank estimates that the amount of untapped flare gas reaches approximately 1.7 billion cubic meters per year, or 162 million standard cubic feet per day (MMSCFD). If optimized, flare gas could power half a million households.
The government is still struggling to increase oil production by 2025. The production target of 650 barrels per day is very difficult to achieve, despite national oil consumption being 1.6 million barrels per day. Currently, Indonesia’s oil and gas imports reach 1 million barrels per day. Under these conditions, efforts to utilize technology to increase oil and gas production are needed, including optimizing gas flaring.
Flare gas can be converted into value-added products such as Liquefied Petroleum Gas (LPG). Dimethyl Ether (DME) is a chemical compound with the potential to be an alternative to Liquefied Petroleum Gas (LPG) for energy needs. This flare gas can be used to generate electricity, creating new business opportunities and jobs.
Flared gas has not been optimally utilized to its full potential, despite its significant economic and environmental potential. Addressing these challenges requires collaboration between government, industry, and other stakeholders. With the implementation of appropriate technology and a suitable business model, the utilization of flared gas can be realized.
Data from the World Bank’s Global Gas Flaring Reduction program shows that Indonesia still burns approximately 1.7 billion cubic meters of gas per year. This amount is equivalent to 162 million standard cubic feet per day (MMSCFD). If this gas were sold at a conservative price of six US dollars per million British Thermal Units (BTU), its value could reach US$360 million. This is further compounded by the carbon credits from avoiding approximately nine million tons of CO2 emissions, which have the potential to increase by tens of millions of dollars.
Gas Flare Governance
The government has actually initiated reforms through Minister of Energy and Mineral Resources Regulation Number 30 of 2021, which requires Production Sharing Contract Contractors (KKKS) to offer flared gas to the market or third parties at prices and with selection mechanisms approved by the minister.
This regulation aligns with Indonesia’s commitment to the global Zero Routine Flaring 2030 initiative, which is also participated in by Norway, Kazakhstan, and several global oil and gas companies. This regulation provides a strong legal foundation and opens up space for new technologies and business models that can encourage the monetization of gas flares. Government regulations are clear and even include sanctions for gas flare violations. Sanctions for Cooperation Contract Contractors (K3S) who violate regulations related to gas flaring in oil and gas business activities include written warnings, revocation of the Head of Engineering’s appointment, and/or temporary suspension of operations at production facilities. These sanctions are stipulated in Minister of Energy and Mineral Resources Regulation Number 17 of 2021. This regulation also regulates the awarding of awards to K3S that successfully optimize gas flare management.
However, in reality, many Indonesian oil and gas production areas still engage in gas flaring. Alternatively, some companies avoid sanctions by extracting flared gas using compressor technology and then disposing of it underground. Both are highly harmful to the environment.
The practice of gas flaring or underground disposal of flared gas in the upstream oil and gas sector is deeply ironic. Imagine this: On the one hand, the government is encouraging an energy transition towards a low-carbon mix. On the other, millions of cubic meters of gas are simply flared annually in the atmosphere without being utilized, releasing carbon emissions and eroding potential foreign exchange earnings.
Preventing Wasted Economic Opportunities
Awareness of optimizing gas flaring has emerged in several companies managing oil and gas Working Areas. Pertamina, for example, has implemented gas-to-power flare projects in several working areas, replacing diesel generators with exhaust gas-powered microturbines. ExxonMobil in the Cepu Block has even nearly eliminated routine flaring by utilizing exhaust gas to fuel facilities and reservoir injection.
For flare gas to be beneficial, technological breakthroughs and the utilization of gas on a micro-scale are needed. A modular, skid-mounted micro-scale LNG approach makes it easier to install and move as needed. This technology utilizes flare gas to produce micro-scale liquefied natural gas (LNG) more flexibly. To date, many K3S have been constrained by the volume of flare gas supply. With skid-mounted technology capable of processing flare gas at the lowest scale, down to 0.4 MMSCFD, this will open up greater opportunities for utilizing unusable gas into viable LNG.
Flared gas can be utilized for small-scale power plants with capacities ranging from one to twenty megawatts. Flared gas can be a local energy source for digital infrastructure in remote areas without increasing the burden on the main grid of the Indonesian Power Plant (PLN).
For oil and gas fields far from pipeline infrastructure, technologies such as modular CNG, mini-LNG, and mini-GTL (gas to liquids) are now increasingly commercially viable. The government has planned to build mini-LNG terminals in eastern Indonesia, such as Sulawesi and Maluku, which could utilize flared gas to replace diesel fuel in nickel smelter clusters.
The combination of emissions reductions, subsidy savings, and lower industrial fuel costs creates a multi-pronged effect: a cleaner climate, more efficient state budgets, and more competitive downstream mineral processing. Furthermore, exhaust-based LPG splitters also have the potential to strengthen household LPG supplies, reducing import pressure.
From a fiscal perspective, the benefits of gas flaring are very concrete. First, the sale of gas or its derivatives will increase corporate income tax and oil and gas profit sharing. Second, companies avoid the carbon tax imposed under Law No. 7 of 2021 (the HPP Law), which is IDR 30 per kilogram of CO2, equivalent to a savings of IDR 270 billion for nine million tons of CO2. Third, gas flaring reduction projects have the potential to generate carbon credits worth up to US$30 per ton of CO2 by 2040.
The fertilizer industry utilizes flare gas fully in its production process. Fertilizer companies utilize flare gas for their ammonia production, which utilizes hydrogen. This efficient approach optimizes resources and contributes to emissions reduction efforts.
The potential and benefits of gas flaring are very promising. With the right technology and a suitable business model, gas flaring can provide significant benefits. The practice of flaring gas is not simply a technical issue, but a resource management problem. Amidst a domestic gas supply deficit and fiscal pressures from energy subsidies, gas left unflared represents a wasted economic opportunity.
