Investment in the DME Project is Very Economical, Following Evidence and Its Impact

Indonesia’s coal reserves are relatively larger than oil and natural gas.The latest status of the black gold reserves was recorded at around 38 billion tons.With a production level of around 600 million tons, the age of Indonesia’s coal reserves is estimated to be around 63 years if it is assumed that there are no new reserves findings.

“The current government policy is to encourage downstreaming or increasing the added value of coal, one of which is becoming Dymethil Ether (DME) which can be used as a substitute for LPG. LPG itself is an energy commodity which is still imported more than 70%. So that consumption needs to be substituted to reduce pressure on trade balance and improve national energy security, “said Dadan Kusdiana, Plt.Head of the Research and Development Agency of the Ministry of Energy and Mineral Resources in Jakarta (6/12).

In the context of encouraging the coal downstream policy, business actors that increase the added value of coal can be given certain treatment in the form of imposition of a royalty of 0%.This is stated in Law Number 11 of 2020 concerning Job Creation.

One of the ongoing DME projects is carried out by a consortium of PT Bukit Asam Tbk (PTBA), Pertamina and Air Products, with a coal input capacity of 6 million tons per year to be able to produce 1.4 million tons of DME.

However, in November 2020 there was a study conducted by athink tankwhich stated that the DME project did not enter an economical scale and caused an annual loss of around USD377 million.

The follow up that study, Downstream Coal Research and Study Team EMR analysis and confirmation of the assessment agencythink tankwith aFeasibility Study(FS) PT BA, in order to get that DME project is economically viable.The difference in the results of the study is due to differences in the data assumptions used, calculation methods and consideration of themultiplier effectof the project.

The LPG price assumption used by thethink tankis USD365 / ton which only reflects the price conditions in 2020 when energy demand was low during the pandemic.Meanwhile, the LPG price assumption at FS PT BA of around USD600 / ton reflects the average LPG price in the last 10 years.This difference greatly affects the selling price of the DME.

Another difference relates to the assumption of coal prices and coal input capacity.The think tank’s coal price assumption used is USD37 / ton.Meanwhile, FS PTBA was around USD21 / ton which was the price of low quality PTBA coal at the time the FS was made.Regarding coal input, there is a difference of 500 thousand tons, in which FS PTBA is more efficient.

The calculation method used by the think tank is very simple, it only shows a one-year calculation with the assumption that the DME production cost is USD300 / ton, which refers to the Lanhua Plant reference in China.

Meanwhile, PTBA has conducted acomprehensiveFeasibility Studywith data assumptions (as shown in the table) which results in a project economy with aNet Present Value(NPV) of USD350 million and anInternal Rate of Return(IRR) of around 11% so that the project is economical and does not suffer losses.In addition, FS PTBA also considers other economic impacts.

In addition to project economics, there are at least 6 points of economic impact from coal downstreaming for DME.First,DME increases national energy security and reduces dependence on imports of LPG.By using DME, it will reduce LPG imports by up to 1 million tons of LPG per year (DME production capacity is 1.4 million tons per year).Second,saving foreign exchange reserves of up to Rp 9.7 trillion per year and saving the Trade Balance of up to Rp 5.5 trillion per year.

Third, itwill increase foreign investment entering Indonesia by USD 2.1 billion (around Rp. 30 trillion).Fourth,utilization of low calorie coal resources of 180 million tonnes for 30 years of plant life.Fifth,there is amultiplier effectin the form of direct benefits to the government of up to IDR 800 billion per year.Sixth, theempowerment of national industries that involves local workers with the absorption of around 10,570 workers at the construction stage and 7,976 people at the operation stage.

In addition, in supporting the implementation of the substitution of LPG to DME, Lemigas Balitbang ESDM has conducted trials related to DME stoves.”Our trial results show that the efficiency of the stove increases from an average of 61.9% with the use of LPG, to 73.4% when using DME. So that DME needs for cooking needs decrease, lower than the theoretical calorie needs,” he added. Dadan.(US)