Malaysia and Indonesia were the first countries in Southeast Asia to announce that carbon capture and storage (CCS) would play a role in decarbonising their industrial sectors. BP (LON:BP) in Indonesia, and Petronas in Malaysia, announced landmark projects in the oil and gas industry. However, while Indonesia has started having the right conversations around CCS, neighbouring Malaysia, and possibly even Thailand, appear to be making more progress within the region.
Indonesia’s nascent CCS and carbon capture utilisation and storage (CCUS) sector was in the spotlight at the Indonesian Petroleum Association (IPA) conference last week in Jakarta. Indeed, delegates heard that the Indonesian archipelago has huge potential for carbon storage.
Carbon Storage Potential
According to government data Indonesia holds 2 giga tons (GT) of carbon dioxide (CO2) storage potential in oil and gas reservoirs plus another 10 GT of potential in saline aquifers. ExxonMobil (NYSE:XOM) estimates there is 80 GT of CO2 storage capacity in the nation’s saline aquifers, while consultancy Rystad Energy puts the potential at more than 400 GT.
Based on IHS Markit data there are at least eight potential CCS-CCUS projects proposed in Indonesia. Still, the projects require legal certainty, ease of doing business, and fiscal incentives to attract significant investment.
As a first step towards creating a viable carbon storage industry, the Directorate General of oil and gas has established a team to formulate implementing regulations – covering technical, legal and business aspects – that will support the development of CCS-CCUS in Indonesia.
Delegates at the conference heard that the main challenges facing the sector are making technology costs more affordable and developing much-needed additional regulations. Nevertheless, most CCS-CCUS activities in Indonesia remain in the study and preparation stage, but many of them are targeted onstream before 2030, noted a government speaker.
Tracy Lothian, vice president, Asia Pacific, low carbon solutions at ExxonMobil, told delegates that CCS needs visible government support as a viable, competitive, and essential solution to cut greenhouse gas (GHG) emissions. Durable policy and market driven financial incentives, as well as supportive regulations and legal environment, are also key for success, she said. As is international collaboration, which is especially true for Indonesia, as cross-border collaboration will make large projects scalable, added Lothian.
In May this year, ExxonMobil and Pertamina, the state-owned energy company of Indonesia, signed a joint study agreement to assess the potential for large-scale implementation of lower-emissions technologies, including CCS, as well as hydrogen production.
“CCS is one of the few proven technologies that could enable some of the highest emitting sectors to reduce emissions at scale. For every ton of cement produced, nearly an equivalent amount of carbon dioxide (CO2) is emitted and every ton of steel produced emits almost double the amount CO2. Scalable projects are needed to meet the emission reduction targets set by many stakeholders,” Lothian said in a Linkedin post following the conference.
“To put CCS amounts into perspective, capturing 9 million metric tons per year is equivalent to planting 150 millions trees annually or to taking about 2 million passenger vehicles off the road each year. 9 million metric tons per annum also happens to be the amount of carbon ExxonMobil currently sequesters,” she added.
The Right Conversations
Indeed, market sources told Energy Voice that Indonesia is starting to have the right conversations around CCS. However, in terms of developing the sector, Malaysia, possibly even Thailand, are ahead of Indonesia. “Malaysia effectively recognises the difference between the oil and gas value chain and the CCS value chain, as well as the need for different market models. They have started devising regulations in Malaysia already,” noted one industry source. “Malaysia is two to three steps ahead of Indonesia. They are also having the correct conversations around carbon pricing.”
Underscoring the progress in Malaysia, Petronas in June announced the establishment of a new clean energy solutions company, Gentari, as part of a global push by the state-backed energy firm to produce carbon-free energy. Petronas has also signed numerous MoUs covering the downstream industry and value chain for CCS-CCUS, particularly with Japanese players.
Last year Petronas announced a strategic plan for CCS across depleted gas fields in Malaysia with a total 46 trillion cubic feet of storage volume identified. There is even bigger potential to expand this volume if aquifers and depleted oil fields are considered. Moreover, the NOC has stated its ambitions to make Malaysia a regional carbon storage hub.
Meanwhile, back in Indonesia, the biggest emitters do not appear to be on board for the industrial CCS and CCUS push. “State utility PLN, the country’s second biggest emitter is making losses and is under pressure to keep costs low. They cannot raise prices. Obviously, CCS is not a priority,” said a separate industry source.
Another big emitter, perhaps the country’s biggest, is state-controlled Krakatau Steel – the largest steel maker in Indonesia. It has been posting losses for years and has no control over its product pricing. CCS is not big on their agenda either, added the source.
As always, the potential is there in Indonesia. But too many government ministries and too much politicking tends to slow progress. As one industry source focused on CCS remarked “there is no joined up writing.”
Still, on the bright side in Indonesia, BP has turned to CCS to decarbonise its liquefied natural gas (LNG) operations in West Papua province at its Tangguh project. Although critics argue that the CCS plan could be considered “green washing” as the motivation behind the move is to enhance gas recovery at the asset, which is governed by a cost-recovery production-sharing contract (PSC). It is a bonus that it cuts emissions too.
Indonesia’s national oil company Pertamina is also studying CCS-CCUS projects in the Gundih and Sukowati oil and gas working areas.
Ultimately, while the upstream oil and gas sector appears to be the driving force behind a carbon storage push in Indonesia, the government needs to get onboard with a more holistic approach towards developing a carbon industry, similar to the direction witnessed in Malaysia.