Coal Statistics and their use for designing energy policy. (Vol 98)
The “Handbook of energy & economic statistics of Indonesia” (Handbook) by the Ministry of Energy and Mineral Resources (ESDM) in July 2018 is available in English on the ESDM web site. The preference acknowledges a number of limitations in preparing this handbook. These limitations include – reliability and differing formats of data etc. This article takes a look at the coal aspects outlined in this Handbook, as may provide a guide for the usefulness for the national energy policy.
The Coal resource and reserve data.
The Handbook, contains a number of tables prepared by the Geological agency. Indonesia’s coal reserves are listed as 24,239,960,000 ton from 11 provinces, of which 5 provinces have more than 1 billion-ton reserves. The measured resources are 39,673,510,000 ton (16 provinces) along with further indicated, inferred and hypothetical resources of around 85 billion ton in 23 provinces.
This 2018 handbook indicates that Steam Coal production has been relatively stable at around 460 million ton per year since 2013, with exports dropping slightly from 382 million ton in 2014 to 298 million ton in 2017. There is an increase in coal imports from 600,000 ton in 2013 to 4,532,000 ton in 2017. In 2017, total coal consumption was 97 million ton of which 83 million ton was consumed by power plants (54.7 million by PLN) with other coal to the iron& steel industries, ceramics & cement, and previously to the pulp & paper industries along with minor consumption in the briquette industry.
Recent news reports indicate the trend for 2018 appears to be for some slight increases in production and exports, with domestic consumption at around 105 million ton, of which PLN consumed 90 million ton. The expected 2019 total coal production is to be about 500 million ton. Note that the Handbook points out that coal statistics vary between different agencies.
How reliable and useful is this coal data?
The ESDM handbook admits that the gathering of accurate data is difficult, and often not accompanied with sufficient clarification. The Geological agency has commented in various seminars that coal reports submitted to the Geological Agency are of varying qualities, wherein the agency has insufficient resources to carry out thorough scrutiny over resource estimates it receives.
Separately, it should be noted that during the recent years of low coal prices, many major coal miners did not revise their reserves down, based on the adjusted stripping ratios (SR), as this would negatively impact on their credit and share profile. The ESDM introduced in 2018 regulations (Kepmen 1806 & 1827) that requires coal companies to regularly submit reports on updating their resource and reserve estimates.
It is widely acknowledged that many coal mines will issue resource reports wherein some of their parameters may be biased towards increasing their attractiveness. The ESDM introduced in 2018 regulations (Kepmen 1806 & 1827) to lift the standard of technical reporting, and to use accredited professionals in such reporting.
The Handbook provides a breakdown of the oil & gas sector into the different types of fuel products (RON88, Avtur, Kerosene, ADO, fuel oil, RON 92 etc), yet the Handbook does not provide adequate data of the various coal quality parameters associated with domestic consumption, exports and imports. The strategic handbook does not show how much coal reserves are of suitable quality for the domestic market.
The ESDM handbook figures seem to ignore Indonesia’s modest semi-soft & coking coal production, yet the handbook indicates Indonesia imported some 4 million ton of coal in 2017. This imported coal may have been coking coal destined for the Indonesian steel and nickel smelting industries.
Not all coal deposits are equal.
It is common practice in the coal industry to undertake feasibility studies based on a ‘life of mine pit” that typically requires an exploration program to cover nearly all the target resources. Therein the mining companies reserve and measured resources may not have much more coal potential in the resource categories. Conversely, a number of exploration projects have a history of modest exploration to define large resources, but to not proceed to the reserve category due to economic or environmental factors. For example, there are a number of coal deposits in the Jambi – Ria area with large resource tonnages of very low-grade coal that are not viable with the associated long haulage requirements (no reserves).
There are a number of coal deposits that may have submitted reserve statements to the government in conjunction with special circumstances, wherein a change of economic situation may lead to a change of resource / reserve status. 1) A number of potential mine mouth power plant projects stimulated the exploration of coal resources and reserves. However, if such power mine mouth power plants are not built, then many of these “stranded” coal reserves may now be considered as resources. 2) There are a number of very large coal deposits with drilled resources that require rail lines to then convert such resources into reserves. Some well known examples are Lahut of South Sumatra and the Churchill resources of East Kalimantan. 3) Some resources / reserves are assigned to underground mining proposals, but realization may not be easy to achieve.
Changing National Coal Strategy.
The national coal strategy is laid out within the Presidential Regulation 22 / 2017 (March) on National Energy Strategy (Rencana Umun Energi Nasional – RUEN), as available on the ESDM web site. This 2017 national coal strategy anticipates an increase in domestic coal consumption, with a corresponding reduction of coal exports. This involves a cap of 400 million ton per year (tpy) of coal production starting in 2019 and continuing to 2046 when domestic coal needs are estimated to exceed 400 million tpy. This strategy seems to be based on an associated table 30 of coal reserves of 23.3 billion-ton probable, and 9 billion to proven reserves. At the time it was assumed that Indonesia would soon run out of coal. Most geologists realize that Indonesia’s coal potential can continue to grow through further exploration and innovation in mining & transport, perhaps at a faster rate than the coal is being mined out.
This strategy of capping coal production at 400 million tpy seems to considered national self-interests over the wider regional development of Asia neighbours that import Indonesian coal. This selfish coal cap policy apparently did not consider that Indonesian neighbours can improve their economies through reliable cheap coal from Indonesia, and so provide more markets for Indonesian export of manufactured goods, and for such neighbours to afford to send tourists to Indonesia.
Such a restrictive coal cap export policy may see foreign coal exporters fill the gap left by the withdrawal of Indonesian coal exports – with the ultimate impact of Indonesian losing market share and export revenue. The Indonesian coal cap policy may be a stimulus for the development of the Galilee basin coal development in Australia to compete with Indonesia. We saw a similar shift in emphases with Indonesia’s nickel ore export ban that allowed competitor nations to step up their nickel ore exports. The biggest losers of such restrictive production policies are regional Indonesia where such mines provide jobs, opportunities and growth.
The change of Indonesian economic circumstances has seen a reduction in downward adjustment to domestic consumption trends through cancellation of some proposed new coal fired power plants, and overcapacity in the cement industry. This changing trend has also seen an increase in coal production and exports to around 500 million ton/year in order to provide Indonesian with urgently needed export income. It was seen that the World Bank helped Indonesia out of the 1998 financial crisis, as the Bank recognized that Indonesia could rely upon a mature oil industry to under pin national credit worthiness. We might expect this trend to maintain high tonnages of coal exports to take over from the declining oil industry in support Indonesia’s national credit profile.
Who gets to mine.
The ESDM wants to introduce a policy whereby each Province is formally allocated a coal production quota. The handbook provides a useful summary of each provinces coal resources and reserves for the ESDM to consider. Each province shall want to maximize it’s developed of coal mining to encourage employment and growth. It may be expected a centralized policy to allocate coal production tonnages to each province will meet with considerable opposition from each Province and by investors. Certainly, any limitation of coal development may further stifle coal exploration and ultimately work against the industry.
The “Handbook’s preface notes; – “currently, the problem related to energy data in Indonesia is the unavailability of demand-side data. To date, energy data are actually calculated from the supply side data.”
The determination of the Domestic Market Obligation (DMO) has been outlined in various seminars. Each coal producer submits their production plan for the coming year, and the ESDM gathers data from the various coal users. The ESDM adds in a demand contingency (up to 10%) and compares such figures to the long-term national planning projections of domestic coal consumption for a final determination of the annual DMO tonnages.
Initially such DMO coal was contractually to be provided by the Coal Contract of Works companies (PKP2B). In 2018 the ESDM issued regulations to change the DMO providers to include all coal producers (including IUP producers) must provide 25% of production to the Domestic Market. This 2018 regulation continues to ignore the domestic coal consumers buying strategy of targeting limited coal quality criteria, and certain producers for their reliability and deliverability factors.
Many coal exporters can find markets for very low coal quality, high sulphur coal, and very high-quality coals that are not desired by domestic coal consumers. Another unequal factor is the location of coal mines with respect to markets. For example, there is a coal mine of very low coal quality near Meulaboh on the west Aceh coast that has a shorter shipping distance to Indian markets, but uncompetitive shipping to Java markets.
The ESDM’s solution to buyers limited supply preference is to develop a system of domestic coal credits. Producers that supply excessive volumes to domestic consumers, can then sell such coal obligation credits to others who are not able to meet the 25% sales to domestic consumers. The new 2018 regulation now inserts some ESDM controls on such transfer of credits. This sale of credits is a business to business deal, whereby the price of such credits has become a hot issue. This sale of domestic coal credits may go some way to compensating the domestic supply obligations for a regulated strongly discounted price.
The overall DMO policy is socially well supported by the coal industry, but the manner of its application by the ESDM is strongly contested by the coal industry.
The Handbook’s preface includes the following: – “We hope the process to standardize Energy and Economy data and information in the future will be continued as part of the updating of the Handbook…” This review may be useful in suggesting areas further areas for updating future Handbooks; –
- Provide more information on the credibility of coal resources and reserves by nominating such resources / reserves reporting standards.
- List various agencies coal data and examine any differences, and so improve our confidence in compiling such data for national planning purposes.
- The handbook could be improved by providing internet linkage to other Government sites that freely provide much more detail on Indonesia’s coal resources, reserves and coal consumption patterns.
- The handbook could provide more information on the coal quality parameters sought by the Domestic Market, and so provide further refinement towards implementing a fair DMO program.
- The Handbook provides a good indication that Indonesia is importing more coal, of presumable high quality. The Handbook could confirm the nature and use of such coal. This could provide significant input to the national coal strategy, perhaps to emphasize and encourage the development of corresponding high-quality coal exploration and mining to substitute future coal imports with domestic production.