Indonesia is one of the world’s largest and fastest-growing energy consumers. While natural gas and oil production have been falling over the past decade, coal production has risen to satisfy both domestic and export demand. Renewable energy has seen steady growth, with an energy transition plan unveiled in 2022 and a green energy investment fund announced in 2023 set to accelerate the uptake of renewables through to 2030. Indonesia will also benefit from global demand for copper and nickel, whose mining, refining and exports should boost economic growth and employment.
Structure & Oversight
Law No. 22 of 2001 is the primary law governing Indonesia’s oil and natural gas sector, and gives the Ministry of Energy and Mineral Resources (MEMR) the power to set policies for the industry through its Directorate General of Oil and Gas. The directorate generals of electricity, minerals and coal, and new, renewable energy and energy conservation regulate different segments. MEMR also issues business and operational licences for energy and resource industries. The ministry has been led by Minister Arifin Tasrif since October 2019. However, with the upcoming transition of power from two-term President Joko Widodo, better known as President Jokowi, to the incoming President Prabowo Subianto in October 2024, there is a possibility that he may be replaced.
A 2002 presidential decree formed the Oil and Gas Downstream Regulatory Agency, and a 2013 presidential regulation amended the law to create Special Taskforce for Upstream Oil and Gas Business Activities (SKK Migas), both of which are under the auspices of MEMR. The 2007 Energy Law lays out the country’s energy management policies. Its stated aim is to reduce Indonesia’s reliance on imported refined oil and boost other energy sources, like geothermal and hydropower. It also created the National Energy Council, whose members are chosen by Parliament, and which drafts the country’s energy policy. Meanwhile, Ministerial Decree No. 12 of 2017 regulates renewable energy – including solar, wind, biomass, biogas, geothermal and hydropower – and sets purchasing guidelines for the national utility. A new renewable energy bill has been debated in Parliament for several years, and will be the main legal document governing renewables if ratified.
Key Entities
MEMR regulates Pertamina, the public energy producer and distributor, and four Pertamina subsidiaries created during a government-led consolidation drive in 2018-20. Pertamina Hulu Energi (PHE) is Pertamina’s upstream and production arm, Perusahaan Gas Negara is Indonesia’s largest natural gas transport and distribution company, Kilang Pertamina Internasional handles petrochemicals and refinery operations, and power generation and renewables is under the auspices of Pertamina New & Renewable Energy. PHE was scheduled for an initial public offering in 2023, although there were no updates by September 2024.
Another wholly public entity is the national electricity company, Perusahaan Listrik Negara (PLN). It is Indonesia’s largest power producer and the country’s only electricity distributor, selling 274 TWh in 2022 for Rp311trn ($20.2bn). Of that figure, Rp58.8trn ($3.8bn) was subsidised, up from Rp49.8trn in 2021 ($3.2bn) and Rp48trn ($3.1bn) in 2020. Incoming President Subianto has indicated that he will potentially reduce energy subsidies to pay for other electoral promises.
Coal is the country’s largest energy source, accounting for 67% of domestic energy production in 2021. Coal-fired power plants provide some 60% of PLN’s electricity generation, and the country’s coal producers are overwhelmingly majority family-owned companies. The largest coal miner in the country by market capitalisation is Bayan Resources, which is 61% owned by Indonesian billionaire Low Tuck Kwong. The second largest is Adaro Energy, which is owned by the Thohir and Soeryadjaya families. Additional family-led companies are Bumi Resources – 46% owned by the Indonesian Salim family through Hong Kong-based Mach Energy – and Sinar Mas Mining Group, which is owned by the Indonesian Widjaja family. Bukit Asam is the only large coal mining company with state shareholding, which is at 65%, and is active mainly on Sumatra.
Foreign companies have a larger footprint in the oil and gas sector, where international giants such as US companies ExxonMobil and Chevron, and China National Offshore Oil Corporation operate. These three companies, together with two Indonesian entities, Pertamina Hulu Mahakam and Pertamina EP, produce approximately three-quarters of the country’s oil.
Indonesia’s renewable energy market is still young but is slowly attracting more attention from large international firms. Actors include Singapore-headquartered Sindicatum Renewable Energy and Green Era, China’s Trina Solar, and Canadian Solar. Indonesian companies are active at the smaller end of the scale and include Solardex Energy and Xurya Daya Indonesia.
Sustainability
MEMR oversees Indonesia’s National Energy Policy as outlined by Government Regulation No. 79 of 2014. A key target of the policy is generating a minimum of 23% of the country’s electricity from renewables by 2025, with an increase to 31% by 2050. According to the 2023 Indonesia Energy Transition Outlook, renewables accounts for 10.4% of the country’s energy mix, and MEMR statistics indicate that in 2022 coal made up 42.3% of the domestic energy portfolio.
In September 2022 MEMR launched its Net Zero Emissions (NZE) Roadmap, which aims to remove coal from the domestic energy mix by 2030 and increase the role of renewables to 87% by 2060. It has also announced plans to build nuclear power plants as part of the NZE, though their construction would require additional legislation beyond the existing nuclear energy law. In November 2023 Minster Tasrif rejected a parliamentary proposal to form a new renewable energy management agency, arguing that its potential responsibilities were already handled by MEMR.
Size & Performance
Indonesia’s natural gas production has declined 1.9% per year on average over the last decade – from 77.6bn cu metres in 2013 to 64.3bn cu metres in 2023 – although 2023 saw a 2.3% rise in gas production. Oil production has experienced a similar decline, witnessing a 3.1% annual reduction on average to fall from 871,000 barrels of oil per day (bpd) in 2013 to 638,000 bpd in 2023. As a result, imports made up 23% of the country’s oil supply in 2021, which represents a 27% increase since 2001. The country has been a net oil importer since 2009. Likewise, natural gas exports have declined 51% since 2001, but Indonesia was still able to export 33.5% of its production in 2021.
Coal’s fortunes have been the opposite. Production has grown by 5.1% per year on average over a decade, rising from 474m tonnes in 2013 to 775m tonnes in 2023 – a record high – with a 12.8% production spike in 2023 alone. Domestic coal consumption has grown even faster, at 10.6% per year on average over the same period. The government initially set a 710m-tonne target for 2024; in March it approved production quotas for 922m tonnes, some 30% higher than its target.
Renewables usage is also growing, although it remains less utilised than other sources. Renewable energy consumption has gone from 0.26 exajoules (EJ) in 2013 to 0.65 EJ in 2023, growing at 9.8% per year on average, with the majority of this consisting of hydropower. However, this is still a fraction of the country’s coal consumption the same year, at 4.32 EJ.
One cause for the fall in oil and gas production is decreasing investment in exploration and capacity-building. In 2019 the sector attracted $12bn in investment, down 25% from $16bn in 2016. The result of this slowdown is clear in data published by MEMR: proven gas reserves stood at 36.3trn cu feet in 2022, down from 103trn cu feet in 2012. Proven oil reserves have also declined rapidly, from 3.74bn barrels to 2.27bn barrels in the same period. Insufficient foreign investment could complicate Indonesia’s implementation of the NZE plan, as government-led investment is reliant on profit from Indonesia’s large mining and resources sector. This means that funding will be pro-cyclical and could potentially worsen boom-bust cycles.
The domestic coal industry experienced an exceptional year in 2022 amid record global prices as the world economy bounced back from the constraints of the Covid-19 pandemic. Adaro Energy’s revenue rose to $8.1bn in 2022, climbing from $4bn in 2021, with profit almost tripling to $4.6bn from $1.8bn. Bumi Resources recorded $1.8bn in revenue and $371m in profit in 2022, up from $1bn and $201m in 2021. Indika Energy saw revenue grow from $3.1bn in 2021 to $4.3bn in 2022, and gross profit rose from $918m to $1.5bn over the same period. Meanwhile, Bukit Asam’s revenue was Rp42.6trn ($2.8bn) in 2022 compared to Rp29.3trn ($1.9bn) in 2021, and gross profit was Rp18trn ($1.1bn) in 2022, compared to Rp13.5trn ($876m) in 2021.
However, it appears that 2022’s performance was exceptional, rather than a new norm. Bayan Resources saw revenue decrease to $3.6bn in 2023 from $4.7bn in 2022, which was a drastic increase compared to $2.9bn in 2021. A similar rise and fall was seen in profit, which was $1.66bn, $3.2bn and $1.75bn in 2023, 2022 and 2021, respectively. Adari Energy, Bumi Resources, Indika Energy and Bukit Asam all saw a comparable decline in revenue and profit between 2022 and 2023.
This story was replicated in the oil and gas sector, with average global oil prices hitting their highest level in almost a decade in 2022. Pertamina recorded $84.9bn in revenue and $4.1bn in profit in 2022, up from $57.5bn and $2.2bn in 2021. In 2023 the company saw revenue moderate to $75.8bn, although profit rose to $4.7bn. Through taxes, dividends, additional revenue and fuel given for subsidies, Pertamina contributed $25.9bn to the state in 2023, following $29.6bn in 2022 and $16.7bn in 2021. Another key Indonesian oil and gas company, MedcoEnergi, saw $2.3bn in revenue in 2022, up from $1.3bn in 2021, whereas its gross profit more than doubled to $1.3bn in 2022 from $550m in 2021. The company’s revenue dropped slightly to 2.2bn in 2023, registering gross profit of $1bn.
Energy Exports
Coal is by far Indonesia’s largest export product, although it also exports a significant amount of crude oil and gas. The country earned $34.6bn from coal exports in 2023, lower than the $46.7bn earned in 2022 but still higher than earnings in prior years, according to Statistics Indonesia. Gas exports, meanwhile, were valued at $8.8bn in 2023, and crude oil at $1.75bn. MEMR estimates that Indonesia exported 518 tonnes of coal, 473trn British thermal units (Btu) of liquefied natural gas (LNG), 118trn Btu of piped natural gas and 21.4m barrels of crude oil in 2023.
Indonesia exported 66.8% of its coal production in 2023, and coal exports have grown by 45% since 2013. Crude oil exports have declined nearly 80% over that same period alongside a drop in production, making up 9.7% of total production in 2023; however, exports rose by 38% that year, from 15.5m barrels to 21.4m. Natural gas exports follow a similar pattern. Exports of piped natural gas and LNG have declined by 48.7% and 46.7%, respectively, since 2013, although LNG exports saw a slight rise of 8.9% in 2023.
Indonesia’s energy export markets are mostly high-population countries in South and East Asia. Coal exports go primarily to India, China and Japan. The largest destinations for crude oil are Thailand, China and Australia, while LNG’s main markets are Singapore, South Korea, China and Japan. Indonesia exports piped gas to two countries: in 2023, 4.1bn cu metres was exported to Singapore, and 0.4bn cu metres to Malaysia.
Energy Imports & Domestic Sales
Indonesia’s energy imports are centred around crude oil and refined oil products. Indeed, oil imports have grown by 91% between 2001 and 2021, making up 37% of Indonesia’s oil consumption. According to MEMR, in 2023 the country imported 132m barrels of crude oil, 26.9bn litres of oil fuel and 6.95m tonnes of liquefied petroleum gas. Indonesian energy companies are required to adhere to domestic market obligation laws managed by SKK Migas, which mandate them to set aside a portion of their output for the domestic market. Coal, oil, natural gas and palm oil fall under domestic market obligation laws, and producers must sell 25% of their output to the domestic market at a reduced rate. However, in the case of natural gas, production has been insufficient to meet both domestic market obligations and maintain historical LNG export levels.
Indonesia’s primary energy supply is dominated by fossil fuels. According to MEMR, out of a total final energy consumption of 1.24bn barrels of oil equivalent (boe) in 2023, 317m boe, or 25.6%, came from coal; 264m boe, or 21.3%, from oil fuel; and 121m boe, or 9.8%, from natural gas. In terms of energy demand per sector, industry’s share of energy consumption has been slowly trending upwards, from 39.9% in 2012 to 45.6% in 2023. Meanwhile, transport consumed 36.7% of the country’s energy in 2023, followed by households, at 12.4%, and commercial use, at 4.4%.
Renewables Strategy
Two frameworks lay out Indonesia’s renewable energy plans: the NZE Roadmap, which targets carbon neutrality by 2060, and the Just Energy Transition Partnership (JETP). In November 2023 the government announced the Comprehensive Investment Policy Plan (CIPP). Using $20bn from international donors to seed additional investment, the CIPP’s purpose is to fund JETP’s headline goals: cap power sector emissions at 250m tonnes of CO equiva- lent per year and raise renewables’ contribution to 44% of power generation by 2030. Initiatives under these plans include developing carbon capture technology, for which a legal framework was completed in March 2023; early retirement of the country’s vast fleet of coal-fired power plants; building nuclear power plants; and introducing hydrogen-fuelled transport, with pilot projects under way as of August 2024.
However, the renewable energy initiatives face some challenges. Non-market tariffs set by PLN limit the competitiveness of renewable energy, and high fossil fuel subsidies, primarily targeting coal and oil – estimated to be $12bn in 2024 – further skew the market. Moreover, while the CIPP highlights the need for investment in transmissions, and hopes to attract $19.7bn in investment to improve transmission infrastructure, the International Renewable Energy Agency estimates that $80bn is needed by 2030 alone. Lastly, strict local content regulations have led to slow growth in the domestic solar power industry, which produced 1.6GW in 2022, far below the 2050 goal of 300GW.
Mineral Resources Structure & Oversight
The main regulator for the mining industry is the MEMR’s Directorate General of Minerals and Coal, which formulates policies for the development, control and supervision of any activities in the mineral and coal sectors. The sector’s legal foundation is Law No. 4 of 2009 on Mineral and Coal Mining, which legislates procedures including the creation of mining areas, the acquisition of business permits, land use, permit-holder obligations and criminal procedures.
A notable development in the mining legal framework has been a change in the strict divestment requirements. Before a 2020 amendment, foreign companies had to divest their ownership to the central or a local government within five years of starting production, and divest at least 51% of the company by the 10th year of operation. The 2020 amendment extended the period for the latter to 15 years for surface mining and 25 years for underground mining. It also provided more divestment options, including to state-owned companies and domestic privately owned companies. An additional 2023 amendment ensures mining areas are no longer bound by government administrative boundaries that are part of national spatial planning.
Key Mining Entities
Indonesia has several mining companies focused on key resources. Established in 2017, Mineral Industri Indonesia (PMII) has a similar role in mining as Pertamina has in the oil and gas sector: it is the holding company for several sector-focused state entities. It is the sole shareholder of state mining holding company and aluminium producer Indonesia Asahan Aluminium (Inalum). Furthermore, it holds the majority of shares in both ANTAM, Indonesia’s largest nickel producer that also mines gold, silver and bauxite; and Timah, the world’s largest producer of tin.
PMII is a major shareholder in two joint ventures with foreign companies. It holds a 51.2% stake in copper and gold producer Freeport Indonesia, a subsidiary of US-based metals company Freeport-McMoRan. The latter is the majority shareholder of Indonesia’s Grasberg mine – one of the largest gold and copper reserves in the world. Another shareholding of note is in nickel miner Vale Indonesia. It is a subsidiary of Brazilian mining company Vale, which operates through its Canadian branch, Vale Canada. Trimegah Bangun Persada (TBP) is a major nickel miner owned by the Harita Group, and does not have any PMII shareholding.
Mining Size & Performance
Indonesia is the world’s largest nickel producer, responsible for 40% of the world’s production and 20% of nickel reserves. In addition, it produces 26% of the world’s tin and holds 17% of its tin reserves. The country is the second-largest global producer of coal, accounting for 9% of production and 4% of reserves. Furthermore, Indonesia produces 4% of the world’s gold and has 5% of reserves. It also produces 4% of the world’s copper and 5.6% of the world’s bauxite ore, which is used for aluminium. Mining contributed 11.9% to Indonesia’s GDP in 2023.
The revenue of key players largely depends on the business area. Nickel producers ANTAM, Vale Indonesia, and TBP’s revenue rose year-on-year in 2023, reaching Rp32.6trn ($2.1bn), $1.23bn and Rp23.9trn ($1.6bn), respectively, up from Rp26trn ($1.7bn), $1.18bn and Rp9.6trn ($622m) in 2022. Meanwhile, tin producer Timah’s revenue dropped from Rp12.5trn ($813m) in 2022 to Rp8.4trn ($546m) in 2023. This revenue dip continued a downward trend that started in 2019, when revenue was Rp19.3trn ($1.3bn). Both aluminium producer Inalum and copper and gold smelter Freeport-McMoRan achieved record revenue in 2022, with two-thirds of the latter company’s revenue coming from copper mining and one-third coming from gold mining.
Production & Exports
Indonesia’s coal production is mostly located in East and South Kalimantan. Out of the 775m tonnes produced in 2023, 518m was exported. The country historically exports 75-80% of its production, after internal quota requirements are fulfilled. The value of coal exports rose to a peak of $46.7bn in 2022 on the back of a surge in coal prices to $350 per tonne. Since 2023, however, the price has dipped closer to its historical average of $100 per tonne.
Indonesia is the world’s largest tin exporter, exporting 75,000 tonnes in 2023, approximately one-fifth of global output. Some 90% of the country’s tin comes from Bangka Belitung Province near Sumatra. There has been an export ban on unrefined tin since 2014. Plans to extend that ban to all tin in June 2023 had not materialised by September 2024, but the government is still keen to localise more of the value chain.
In terms of copper, Indonesia’s Grasberg, Batu Hijau and Elang mines are among the largest reserves in the world. Indonesia exported approximately 288,000 tonnes of copper in 2023, down from 333,000 in 2022. There are plans to ban the export of copper concentrates by the end of 2024, by which point copper smelters built by Freeport and Amman Mineral Internasional are forecast to be operating at full capacity, allowing for the domestic processing of the material.
Most of Indonesia’s gold is found in its copper mines, and the country exported $848m in gold in 2023, down from $1.6bn in 2022. The primary markets are Singapore and Hong Kong, followed by Thailand and Switzerland. Elsewhere, Indonesia exported $675m worth of aluminium in 2022. In June 2023 an export ban on bauxite, the ore from which aluminium is extracted, came into effect. The government hopes that the ban will stimulate the domestic processing and refining industry in addition to boosting state revenue.
Lastly, Indonesia introduced a nickel ore export ban in January 2020 in an effort to stimulate funding in downstream manufacturing. This has led to investment in electric vehicle battery manufacturing plants, primarily from China, since nickel is a major component in batteries (see Industry chapter). Indonesian exports of ferronickel, a processed form of nickel, have surged 10-fold from $1.4bn in 2018 to $13.6bn in 2022.
Outlook
Although Indonesia’s energy industry has traditionally been dominated by hydrocarbons, the country has vast renewable energy potential. It has the second-largest installed geothermal capacity in the world, its location on the equator ensures consistent access to sunlight, and its mountains give it substantial hydropower potential. Guided by the NZE Roadmap, the country is likely to see increased investment in renewables as the energy transition gathers pace. Meanwhile, its mineral resource wealth should enable it to profit handsomely from rising demand for nickel, copper and cobalt. In the mining sector, Indonesia’s incoming President Subianto has indicated that he will largely continue President Jokowi’s policies in relation to industrial downstreaming. A rise in Indonesia’s value-added output for metals would have the added benefit of generating revenue to fund renewable energy initiatives.
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