The Future of Methanol from Coal Downstreaming in Indonesia

Increasing global carbon emissions has stimulated many countries in the world to find ways to reduce their emissions, in particular, from the energy sector. Undoubtedly, development of renewables and cleaner energy to displace conventional fossil energy has become the answer to this emissions problem for many, for instance electric vehicles, hydrogen-based vehicles, biodiesel, and methanol fuel.

As the biggest economy in Southeast Asia, Indonesia also finds ways to increase the use of renewables and reduce its carbon footprint. One of the government’s plans is to phase-out the coal power plants by 2030. Nevertheless, as the country with a huge coal reserves, reaching up to 38 million tons, it is reasonable that Indonesia must find another way to utilize its resources after the coal phase-out and downstreaming could be the answer for this. In the long run, it is estimated that by 2045 the DME and methanol production in Indonesia could reach 14.13 million tons and 6.15 million tons, respectively.

Coal downstreaming in Indonesia

The Indonesian government has prepared at least eight roadmaps for development and utilization of coal, which aims to optimally use the coal resources and reserves in the country. Among the eight roadmaps, coal gasification to produce dimethyl ether (DME) and methanol is one of them.

The conversion of coal to methanol is a normal strategy for a country with abundant coal resources. Similar to Indonesia, with its abundant coal resources and reserves, China also boosts its methanol industry and uses coal as the feedstock. China has seen the production and consumption of methanol increasing over the years and become one of the world leaders in methanol producers with a production reaching 69.9 MMTs.

Provided that the coal gasification projects are well-executed in Indonesia, the government could reduce its LPG import by replacing LPG with DME. On the other hand, methanol could be used as feedstocks for various industries, including the petrochemical industry. It also can be used for biodiesel production where Indonesia still needs to import methanol for this purpose.

Despite its benefits, the coal downstreaming does not come without any challenges and objections. First, the coal downstreaming might not be economically viable. A study by IEEFA highlights that Indonesia’s coal downstreaming projects, such as DME would not be profitable. Second, the development and use of more coal, such as coal gasification, might create more environmental pollution even though it is lower compared to the conventional use.

Future of coal downstreaming in Indonesia

Currently, Indonesia only has one methanol producer located in Kalimantan with a production capacity of 660,000 tonnes annually. With a demand of methanol of more than one million tonnes annually, Indonesia has become the net importer of methanol.

While there are many ways to produce methanol–from coal (brown methanol), natural gas (gray methanol), natural gas combined with CCS (blue methanol) and biomass (green methanol), Indonesia still relies on natural gas for methanol production. Production of methanol from natural gas faces two major challenges, which is the fluctuating price of the feedstocks and declining supply.

Given the coal reserves in the country, coal downstreaming offers a way to keep developing the methanol industry in Indonesia. In addition to the feedstocks availability, Indonesia still needs massive development for its methanol industry. And for this, Indonesia manages to attract investors for its coal downstreaming (gasification) project.

For example, China invested USD 560 million for a coal to methanol (gasification) project in Aceh, Indonesia which could produce 600,000 tons of methanol annually. Another example is the USD 2 billion investment by PT Air Products East Kalimantan (PT APEK), a joint venture between Air Products, Bakrie Capital Indonesia, and Ithaca Resources in Bengalon District, East Kalimantan to build a methanol factory with a capacity of 1.8 million tons per year.

Nevertheless, there might be a competing interest between coal downstreaming products, methanol, syngas, DME, and others, either for energy or for feedstock for the chemical industry. This is because allocating more products for energy use may mean less for the opposite purposes. Therefore, there is a need to align the allocation of coal downstreaming products.

As there are already alternative policies to reduce LPG use and considering that many petrochemical industries require methanol as its key feedstocks, it is suggested that the coal downstreaming should be more focused on methanol production instead of DME for the LPG substitute purpose.

First, in addition to DME for LPG substitute, the project by Indonesian state-owned gas company (PGN), gas network (jargas) for household development, might be a great alternative. The jargas project could also reduce the use of LPG by households. Second, there is the induction stove policy which aims to replace the use of LPG-based stove.

Even though these two programs are still in the initial process of development and still require a lot of improvements, the petrochemical industries could not easily find the alternatives for the methanol they need.

It is very important for the government, specifically the Ministry of Energy and Mineral Resources (KESDM) and Ministry of Industry (Kemenperin) to synergize the roadmap and coal downstreaming policy, in particular, the methanol and DME production. Hence, the policy enacted by the government could support and complement each other.

*Felicia Grace Utomo is a Researcher in environmental and energy management at the Purnomo Yusgiantoro Center. She graduated from Development Economics from the Atma Jaya University in Jakarta, Indonesia.

Researcher in environmental and energy management at the Purnomo Yusgiantoro Center. He holds a master’s degree in environmental sciences from Wageningen University and Research, Netherlands.