Indonesia Coal Outlook Conference 2022. Vol 138

The Pentomino Indonesian Coal Outlook Conference was held in Jakarta in May 2021, with wonderful support from the local and international presenters. The new technology even allowing one presenter to deliver his presentation from his car while stuck in traffic. This is the first such conference in 2 years owning to the Covid restrictions. It was amazing for some attendees who had difficulty in dusting off old presentable outfits. The following is a brief outline of the presentations in the order they appeared, with a number of discussion points are jotted down at the end.

The overall opinion of market watchers appeared to be that demand continues to outstrip supply, to maintain strong prices for Indonesian coal, until some-time in 2023. Power Poit presentations available on https://bit.ly/indocoalconference

Mr Edwin Nugraha, EVP of Electric system Planning PT.PLN; “The Future of Coal-fired Power Plants in energy Transition Program to Realize the Governments 2060 Carbon Neutral Target”. The power sector presently contributes 15% of the total CO2 emissions (0.92 bill ton equivalent/ year. The identified changes towards nett zero include; 1) large scale New Renewable Energy (NRE) clusters; 2) roof top / battery and smart grid; 3) Carbon Capture and Storage (CCS); 4) early retirement of coal plants; 5) biomass and new technology. Each option has some ready implementation options, though major progress has much “hope” that the many implementing challenges can be overcome (technology, capital, viability, regulation etc).

Prof.Ir. Irwandy Arif, Minister Special Staff for the Acceleration of Mineral and Coal Governance; Keynote speech; “Government’s Grand Policy on the Future of Coal in Indonesia in Energy Transition Scenario”. At a coal production rate of 600 mill t/year, Indonesia has sufficient identified coal reserves for 60 years. The 2022 production target is 663 million ton, of which 165.7 million ton is for Domestic Market Obligation (DMO). Coal will remain the main contributor for energy going forward. Coal production is estimated to remain around 720 million t/year from 2030 to 2060, with DMO increasing displacing exports. Reduction in CO2 emissions will include emphases on biofuels and renewable energy. “Currently, the government is still focused on preparing steps in the planning and managing this energy transition, including setting a strategy so that the transition can provide opportunities for the economy”.

Narsingh Chaudhary, EVP & MD Asia Pacific of Black & Veatch. “Retiring or repurposing Asia’s coal plants; why owners must plan and act now”. Some 48% of Asia Pacific energy is consumed from coal (2021), with 90% of the 195 coal plants being built shall be in Asia, though further investment is near zero. The presentation outlined options for older coal power plants to include retrofit to reduce emissions, repurpose with partial non coal fuel, retire making use of the land. A central issue outlined is to determine where the Climate Investment Funds will come from for such programs.

Dr. Neil D’Souza, Principal Projects Consulting, Argus; “Global coal market forecast”. Key drivers of price forecasts include; supply side struggle to keep up, buyers’ avoidance of Russian coal, with Colombian, South Africa and USA coal supplies to increase only modestly. Coal price has bifurcated over ranges in coal quality. China demand for coal is shrinking, while Indian demand recovering, Europe looking for more coal, while Asian coal demand steady. Argus price outlook; “Our expectations for fob Newcastle in 2022 is USD 232/t coming down to USD 140/t in 2023 for high-ash fob 5,500 Kcal/kg Australian coal price. Prices are expected to average USD 146/t in 2022. The expectation for the Indonesian GAR 5,800 Kcal/kg grade is USD 151/t in 2022, falling to USD 91/t in 2023. GAR 4,200 Kcal/kg coal is expected to be at USD 80/t this year.

Erwin L. Budi, Head of Key Account Volvo construction Equipment Indonesia; Outlined the 3 construction brands of Volvo, SDLG and Terex trucks, along with a range of services to the mining industry. Volvo seeking to provide full range of electric mining vehicles by 2040, and have started with the production of smaller powered mining equipment.

Ms Kiara Zhong, Senior research analyst Mc Closkey; “China’s efforts to control domestic thermal coal prices”. The graph of FOB prices at Qinhuangdao ($/t) for 5,500 Kcal NAR were plotted from Jan 2020 to April 2022, upon which factors for local price changes were outlined. Ms Kiara summarized that the China coal market is driven by domestic production largely from state Owned Enterprises. Direct price intervention could trigger immediate reaction, while the longer-term price momentum only changes with the supply & demand fundamentals. The NDRC is planning new domestic capacity of 300 mt/y to a domestic production target of around 4.60 bill ton/year. The government is encouraging coal stock reserves of 620 mt, to reduce short term market shocks, and lifted certain coal import tariffs till 31 March 2023. Coal is allowed to trade between RMB 550-770/t ($84.60 – 113 $/t for 5,500 KC NAR, while ceiling for spot cargoes is set at RMB 1,155/t ($169/t). Regulators set limits for paper market activities and other aspects to combat market speculation. Questions remain if miners can sustain such high levels of domestic production, and recovery from Covid is expected to increase coal demand.

Emir Ferazta, Senior product manager LiuGong Machinery Indonesia; “Technology Development in Heavy Equipment Industry”. LiuGong is a large China owned international company manufacturing  of a wide range of mining and civil equipment. They have joint ventures with recognized companies from Germany, Japan, USA and Poland. They have various innovations, including EV mining equipment, remote operation and autonomous operation. They have more than 3,000 units operating in various parts of Indonesia.

Mr. Maisam Hasnain, VP senior analyst Moody’s investor services; “Diversification is inevitable amid drive to decarbonize”. Miners are seeking to diversify out from the thermal coal industry, while long term (2020 – 2050) credit risks are predicted to rise under global pressure on Sustainable Development Goals and such. Record prices are expected to boost miner’s earnings and reduce their reliance on debt funded growth. Aside from Bumi and Banpu, most miners do not have large near-term debt maturities. Substantial diversification, or coal divestment, may be required to maintain access to external debt funding. Large miners with strong credit may be more readily undertake diversification. Diversification places risks on managements ability to adapt to a different industry.

Mr Haryanto Damanik, Pres Dir PT. Manambang Muara Enim (MME); “Perspective Outlook of Indonesian coal to the Indian market”. Indonesia has coal reserves of 38.8 billion ton, and coal resources of 143.7 billion ton, mostly located in Kalimantan and Sumatra. India’s coal consumption is 1 billion ton in 2021, and is expected to grow at the rate of 3.9%/year. In 2021, India’s imported 173.32 mill ton of coal, of which 65.5 million ton came from Indonesia. Coal is still India’s primary source of fuel for producing power.

Ms Rituparan Ghosh, research analyst CoalMint, India. “India coal Market Scenario, Domestic Production and Imports”. India’s thermal & coking coal production is around 700 mill t/year, and expected to grow slowly to 1 billion ton in FY 23. Domestic logistic bottlenecks continue to be one of the key challenges. Imports of low CV grades are expected to rise by 20-30 mill ton in FY 23. Coking coal imports also expected to grow slowly, with imports largely from Australia. 

FH. Kristiono, COO PT. Medco Energi Mining Indonesia (MEMI); “India Coal Needs & Challengers Indonesia Miners Perspective”. India, China and Indonesia remain committed to large coal consumption for power and industry. Indonesia’s stated strategy is to increase DMO production at the expense of exports, along with promoting the downstream gasification of coal, CCS etc. Medco coal continues to operate coal mined in East Kalimantan.

Miss Endah Sulastri, Senior associate ADCO Law. “Coal DMO in Indonesia – Data, Implimentation, Monitoring and Sanctions”. Various international agreements, as supported by the Indonesian government contribute to the National Energy Policy mix that will project coal’s contribution at 30% by 2025 and 25% by 2050. The DMO requirement for 2021 was 25% of production, though actual contribution was 21.7%, compared to the previous years varied contribution of up to 27.8%. Several implementing regulations with various schemes to manage the DMO were detailed. There are more implementing regulations in discussion, including the possibility of raising the DMO to 30% of production.

Mr Masafumi Uehara, Japan Frontier Organization. “Japanese Coal Demand Trend”. World coal production in 2021 was 7.3 billion ton, with exports of 1.28 billion ton, and imports of 1.33 bill ton. Japan demand for coal increased following the earthquake that knocked out its nuclear power plants, and in 2020 was around 33% of power production. Japan consumed coal (2019) 59% for power plant, 34% steel, plus remainder for other industries. Coal imports continue to be mainly from Australia & Indonesia, and is consumed in many sites all over Japan. In 2021, Japan imported 20 million ton of mostly thermal coal from Russia, wherein alternative sources are being sought. Japan is considering further risks of Indonesian coal export bans to resolve its domestic issues. Japan is a leader in coal research, with several power plants burning 3% biomass, and the newly completed Hirono most advanced Integrated Coal Gasification Combined Cycle (IGCC) of 543,000 Kw power plant. In order to meet rapidly increasing demand for power, countries are looking for clean coal burning power plants. Japan continues to cooperate with resource countries.

Dr. Lana Saria, Direktur Pembinaan Pengusahaan Batubara. “Governments Grand Policy and the Future of Coal in Indonesia in Energy Transition Scenario”. The coal utilization policy PP 79/2014 gives priority to coal as an energy source. Present coal power stations will be optimized while emphasizing the strategy of coal downstream projects. Present coal reserves are adequate for the next 65 years. The role of coal continues to support domestic needs. Carefully planned coal mining can have an acceptable environmental footprint. Ongoing efforts to reduce CO2, including adoption of Clean Coal Technology where suitable, along with undertaking cofiring. Indonesia’s coal downstream roadmap is in the process of being drafted and will be used as a guide for downstream in development planning.

Beni Suryadi, Manager of the Power, Fossil Fuel, Alternative Energy and Storage of ASEAN Centre for Energy (ACE). “Going In-depth into the role of coal in energy resilience in ASEAN countries”. Since 2000, fossil fuel use has grown rapidly, while the use of biomass for cooking and heating has dropped. In 2019, coal contributed around 42% of the total ASEAN electricity production. It is planned that more than 60% of the newly installed capacity up to 2025 will be coming from renewables. The average coal fired power plant in ASEAN is about 12 years old, with such power plant life expected to be 30 – 40 years. Mapping energy resilience is ongoing.

Mr Ghee Peh, Institute for Energy Economics and Financial Analysis (IEEFA). “Understanding ASEAN coal market outlook; What are the opportunities for Indonesian mining companies”. Indonesia continues to grow its coal exports to China, and this trend may be enhanced with regional considerations to stop taking Russian coal. Four of Indonesia’s top coal producers exported 147.9 million ton to the ASEAN. Russian coal is mostly exported to South Korea, Japan and Taiwan, with a key ASEAN consumer (3.6 mill ton in 2021) being Vietnam. There is no official announcement from Vietnam on Russian coal imports. Vietnam imports 19 mill ton for its present 9.5 GW coal power plant. Philippines imports around 29.5 mill ton (2021), with some growth associated with new coal power plants. The trend for major asset managers/ banks / insurers is to reduce exposure to the coal market.

Mr. Teguh Yahya, General Manager after Sales PT. Indo Traktor Utama and Mr. Samuel Mauger, Renault Trucks Indonesia each presented their truck products that are suitable for the Indonesian mining industry. Mr Nugroho Setyo Utama, VP Sales and Marketing Domestic Industry PT. Pertamina Lubricants presented their products that are distributed throughout Indonesia, and globally.

Mr Widodo Santoso, Ketua Umum Associasi Semen Indonesia (ASI), gave a short outline of the overcapacity of the Indonesian cement industry. In 2021, the kiln capacity is 81.7 million ton with clinker production of 59.1 million ton for domestic sales of 1.0 million ton and export of 10.0 million ton, yielding a utility of 72.4%. In 2021 the Mill capacity is 116.3 million ton with domestic sales of 66.2 million ton and cement export of 1.6 million ton, leading to a utilization of 58.3%. The estimated 2022 coal demand for the cement industry is 16.6 million ton. Coal quality sought is CV (GAR) 4,200 – 4,500 with TM 25-35%, Ash 3-6% and TS <1%. Note that 1 ton of clinker needs 0.25 ton of coal. The new DMO policy assigns the coal price for the cement industry based on US$ 90/ton, however stockpiles are short.

Aisa Tobing, Direktur Eksekutif. Associasi Pulp dan Kertas Indonesia (APBI). “Menakar Konsumsi Batubara di Pasar Domestik” [Measuring Coal Consumption in Domestic Market]. Indonesia has 6 pulp plants, 70 paper factories, 6 intergrated pulp plants, of which 19 plants are not in operation. Installed capacity (2021) is for 12.13 mill ton of pulp, and 18.26 million ton of paper, though 2020 production was 10.53 mill ton of pulp and 13.33 mill ton of paper. The industry directly employs some 261,000 workers. Pulp plants seek 44.8% of their energy from coal. Paper plants seek 61.6% of their energy from coal, being about 9.5 mill ton of coal. Coal quality sought is CV >4,200 Kcal/Kg, TS <1%, ash 12.8%, IM 13.6% and TM 34%. Potential biomass options have been evaluated, with the potential to reduce CO2 emissions of 22,000 ton CO2/day, while downstream value added products with high investment cost are being evaluated / developed.

Mr Dharma Djojonegero, CEO of PT. Adaro Power, “The future of Fossil Fuel Power Generation in ASEAN and Trend of Coal Demand of Power Plants in the Region”. The government policy includes the retirement of some coal plants will start in 2030 as part of ASEAN strategy to emphasize renewable energy options. Adaro has coal projects in Indonesian and Australian, plus an integrated business that included power plants. In FY 2021 Adaro produced 52.7 Mt of coal with a robust cash balance of US$ 1.8 billion at end of 2021. Adaro has captive solar panels of about 600kWp to supply their mining area. Adaro is well positioned to capture various energy options going forward.

Bambang Tjahjono, Direktur ‘executif Associasi Jasa Pertambangan Indonesia (ASPINDO). “Menakar masa depan industry jasa Pertambangan dalam transisi energi Nasional dan trend permintaan alat berat di sector pertambang” [Measuring the future of the mining service industry in the national energy transition and the trend of heavy equipment demand in the mining sector]. Present marketing issues facing the coal sector include the China ban on Australian coal, and the general reluctance to take Russian coal. Mining contractors are concerned for the typical 1-year lead time to acquire large scale mining equipment, and slow delivery of some spare parts, with longer term issues on decarbonization. Smaller class excavators are available from China. Some 90% of Indonesian coal is mined with the use of contractors.

Discussion

Throughout the 2 day conference (18-19 May 2022) there was the opportunity for questions following each presentation, and several short panel discussions. There were about 70 attending, and another 40 on line who were also able to ask questions. There were many interesting aspects brough out through such discussion, including;

• The difficulties in obtaining reliable supplies of biomass for co firing has obliged PLN seeking to work with Ministry of Forestry to develop designated biomass plantations within 100km of regional coal power plants.
• There is a general domestic and international trend towards longer term coal supply contracts.
• The expansion of Indonesian coal production is restricted by slow availability of big mining equipment, and logistic issues of expanding ports, and the difficulties of building new or reflagging imported floating cranes.
• North Asian coal buyers looking to reduce risk of supply from Indonesia, following the January coal export ban.
• Renewable energy prices are typically higher than present levels, wherein it is “hoped” new technology can bring prices down.
• Early retirement options, co firing etc for PLN coal power plants, grid upgrading etc needs money that may only come from strong socially orientated banks such as World Bank, ADB etc.
• The biggest risk of Indonesia not meeting its 660-mill ton production target for 2022 is the weather, and regulatory risk. Some new implementing regulations are due out this year.
• Russian coal with short shipping time from Japan (5 day) to will be expanded to around 20 day shipping to India will tie up some bulk shipping, and may lead to higher shipping & demurrage rates.
• The higher coal price may lead to concerns over potential “fake deals” influencing paper trades etc.
• The HBA includes significant influence from Australian coal (Newcastle) that requires a review. Global coal prices are diverging between high and low CV. Indonesia has well established brands and market strength to restructure the HBA.
• Despite high prices, India will continue to import coal for 10% blend of local coal. It is important to keep the lights on.
• Several European countries are anxious to source Indonesian coal, in response to lack of Russian gas etc.
• Indonesian coal miners are investing in the nickel industry, as part of a long-term strategy to continue growing in the power (EV) industry.
• A real transition to renewable energy is likely to take 10 – 15+ years, and still has some concern on yet to be viable new technology (CCS etc). Mine site solar power is still considered as “showcase”, though allowing first hand study of such options.
• Many companies sell DMO at a very tin cash cost margin, but this may be a loss when including total costs (finance, government guarantees etc).
• Some major coal companies have been offered numerous small coal projects, but little interest due to “pain” of acquisition details / regulatory compliance, and justification of smaller projects.
• Some contractor margins are down, which makes their role in on-site training, and other less visible essential aspects of their role more tenuous.