Pacific Money | Economy | Southeast Asia

Could Biogas Hold the Key to Indonesia’s Energy Dilemma?

By providing an alternative to LPG, and a use for organic waste, biogas could well be an energy policy win-win.

By Massita Ayu Cindy and Luky A. Yusgiantoro for
Could Biogas Hold the Key to Indonesia’s Energy Dilemma?

A pickup truck carrying 3-kilogram LPG tanks in Bali, Indonesia.

Credit: Flickr/Ya, saya inBaliTimur

The consumption of liquefied petroleum gas (LPG) as an energy source in Indonesia’s domestic market has risen continuously over the last decade. By contrast, national LPG production has decreased since 2014 and was only able to provide around 25 percent of the country’s LPG demand in 2019. It seems that without proper management, Indonesia could face a shortage of LPG in the near future.

The considerable gap between LPG demand and national production has made Indonesia increasingly reliant on LPG imports from abroad. The capacity of national LPG refineries has not increased since 2017, while existing refineries operated by upstream oil and gas contractors are dwindling.

The Ministry of State Owned Enterprises has introduced several initiatives aimed at reducing LPG imports by discouraging its usage and promoting alternatives. For instance, the government has established a city gas development program; the state-owned energy company PT Pertamina employed coal gasification to produce DME (dimethyl ether) as a substitute for LPG; and the state electricity company PT PLN has initiated a program to convert 1 million LPG stoves to electric induction cookers. The question, however, is whether such efforts are enough.

Given Indonesia’s economic, geographic, social, and cultural conditions, these programs are unlikely to provide alternatives for the full spectrum of consumer LPG use, especially in rural areas. City gas and induction cookers need a massive natural gas pipeline infrastructure and reliable electricity, neither of which are available in most rural areas. The DME from coal gasification might be an ideal substitution for LPG that can be more easily transported to rural areas, but unless the government offers economic incentives to adopt DME, the project’s economic viability is in doubt.

While often overlooked by the government, there is another LPG alternative – biogas – that has enormous potential and could bring significant benefit to rural Indonesia. Biogas could serve as an ideal LPG substitute that helps secure the country’s energy security, in addition to offering a solution for the country’s organic waste problem.

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The composition of biogas is very similar to that of natural gas, but it is produced from organic matter such as animal manure and agricultural waste. Indonesia contributes the highest quantity of municipal waste in ASEAN, of around 64 million tonnes per year, 60 percent of which is made up of organic waste. It is also common to find news of how cow manure or other organic waste has polluted rivers, prompting protests from impacted residents. Obviously, Indonesia has a waste management problem, especially in rural areas where most organic waste is produced.

These intertwined issues have been acknowledged by several institutions such as the UN Development Programme, Hivos, and the Purnomo Yusgiantoro Center, our own organization. Although there have been successful biogas pilot projects, most of them are still scattered and somehow unnoticed despite the significant benefit to the local economy and environment. For instance, only about 10-20 percent of organic waste in the Citarum River and Cipari Village in West Java are processed as Biogas, while the majority of the organic waste is still disposed in nearby rivers. During our field visits, we observed that some biogas projects were forced to be halted or even abandoned, given the lack of financial support and proper maintenance.

Currently, most funding for biogas initiatives in Indonesia comes from private institutions. While village funds derived from the national budget could also be utilized to develop biogas, most village heads are unfamiliar with the energy source, compared to the construction of roads and irrigation infrastructure. Village chiefs are also known for their lack of financial literacy, the misallocation of funds, and corruption due to the flawed system of accountability.

At the central government level, meanwhile, it remains unclear whether responsibility for running a biogas program lies with the Ministry of Energy and Mineral Resources, the Ministry of Environment and Forestry, or even the Ministry of Villages, Development of Disadvantaged Regions.

This confusion might explain why the government has yet to establish specific national targets and technical regulations for the production of biogas. If these issues remain unsolved, it is unlikely that biogas development can be accelerated in the near future.

Biogas could undoubtedly benefit rural areas, especially those with concentrations of farm and agricultural industries. Biogas not only will serve as an LPG substitute, but also as a means of organic waste treatment and a source of high-quality fertilizers. The utilization of local resources for the production of biogas also guarantees energy independence for the villages. Furthermore, even though biogas digesters have high upfront costs, according to the International Renewable Energy Agency, it is still the lowest annualized cost of all technology options for cooking in developing regions.

Given the significant number of budget allocations the government could tap to import, subsidize, and develop alternatives to LPG, biogas programs should not put a significant fiscal burden on the government.

There are a number of recommendations the government could take into consideration to optimize the biogas development in Indonesia. First, the central government needs to make a decision on which ministry should be responsible for leading the program for the development of biogas.

Second, the appointed ministry, in collaboration with other ministries and local governments should map all the potential, which could be used to make a clear and reasonable biogas master plan and detailed technical regulations.

Third, the technical regulations should accommodate the distinct role of public and private sectors in the biogas development process, as today, the role is still biased.

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Fourth, Indonesia should collaborate with institutions and countries, especially leading biogas producers including China and the United States, to formulate a biogas master plan. This will attract more investment, allow knowledge transfer, and accelerate the development of technology.

Without action on these four issues, Indonesia’s biogas development will continue to stagnate, while LPG availability remains under pressure and rural areas struggle with the environmental challenges stemming from the presence of surplus organic waste.

Massita Ayu Cindy is an Energy Economic & Financing Researcher at the Purnomo Yusgiantoro Center (PYC).

Luky A. Yusgiantoro, Ph.D. is a member of the Governing Board of the Purnomo Yusgiantoro Center (PYC).