Indonesia LNG delays to tighten already overstretched market

Indonesia’s energy sector is at a crossroads. The former OPEC member and world’s sixth largest LNG exporter is facing an energy crunch. Its gas production can’t keep up with demand due to a robust industrial sector and GDP growth averaging around 5 percent per year.

The government has now asked its overseas LNG customers to accept delays in some scheduled shipments, Bloomberg reported. Indonesian Energy and Mineral Resources Minister Bahil Lahadalia said in January that the country plans to prioritise gas output for domestic energy generation and to support downstream industries.

The government has also asked Indonesian LNG exporters to attempt to defer some of this year’s shipments, with delays well into 2026. They may need to withhold around 50 LNG shipments for domestic usage out of roughly 300 cargoes exported each year, the report added, citing ship tracking data.

“This policy has affected some contracted LNG cargoes. However, several shipments for Q1 2025 have received export approval, indicating a selective approach rather than a blanket restriction,” Ristyo Pradana, a Senior Analyst in Jakarta at BowerGroupAsia, told Gas Outlook.

“The government still remains committed to gradually reducing LNG exports, with a long-term plan to stop LNG exports entirely by 2035,” he said. “However, this timeline is contingent on domestic demand growth and infrastructure readiness, particularly on the development of LNG receiving terminals and regasification facilities.”

He added that the impact of LNG export restrictions varies depending on the contractual terms since SKK Migas, as the authority overseeing upstream oil and gas, including LNG, is making its best efforts to prevent contractual violations while prioritising domestic needs.

It remains to be seen if halting exports will result in contractual penalties, he said, but if halting exports results in penalties they would likely be incorporated into domestic LNG prices or included as recovered cost under the production sharing contract.

That could create additional headwinds, however. In Indonesia, natural gas is primarily used for industrial, commercial, and power generation purposes, rather than household consumption. But any increase in prices associated with gas or power generation for consumers would incur backlash. Fuel price increases in the country remain a politically sensitive issue. 

Resource nationalism

Indonesia, however, has been here before. It has a long history of nationalizing its resources for domestic usage. In the past, export restrictions were slapped on several commodities, including crude oil, coal, nickel ore, and palm oil. In 2023, the government also imposed minor LNG export restrictions, primarily by halting gas supply to Singapore from the Corridor Block. The government at the time denied that it was an outright ban but claimed that it was merely prioritising its own interests ahead of foreign customers.

Notably, resource nationalism was one of the stated goals of former Indonesian President Joko Widodo. Just before leaving office last October, Joko said in his final state of the nation address that resource nationalism featured prominently as one of his major achievements. “We took back our assets that for decades had been exploited by foreigners … and only benefitted foreigners,” he said.

However, current Indonesian LNG export restrictions seem based more on supply and demand pragmatism than pure nationalism. Gas demand is expected to reach 2.3 trillion British thermal units (Btu) by 2040, according to state-run Perusahaan Gas Negara (PLN), a two-fold increase over current levels. To keep up with demand, PLN plans to build 20 gigawatts of new gas-fired power plants.

Nevertheless, the country’s gas production declined by more than 16 percent between 2016 and 2023, from 1.40 million barrels of oil equivalent (boe) per day in 2016 to 1.17 million boe in 2023, according to Ministry of Energy and Natural Resources data.

Production declines are due to a number of factors. Around 90 percent of Indonesian gas production comes from mature and ageing fields. Second, a lack of significant new exploration and development projects associated with limited investment in the sector remains due to what many international energy firms consider complex and unfavourable regulations along with a strong governmental focus on domestic control. As such, foreign energy players are largely disincentivised from investing in the country’s energy sector.

The problem intensified, driving away even the most ambitious international oil companies, including Chevron, ConocoPhillips, Hess Corp., Marathon Oil and Talisman Energy. UK-listed energy giant Shell, for its part, has greatly reduced its operations in the country.

Indonesia’s gas exports have already been dropping, adding another layer of complexity to developments. They have declined steadily since 2010, falling by almost half to 21.4 billion standard cubic meters last year, according to a Jakarta Post report. It added that “the fact that the entire industry needed to be readjusted from its export-orientation to serving rising domestic demand was easy to predict long ago.”

Tightening global gas supply

Indonesia withholding as many as 50 LNG cargoes will impact both Asian and global LNG markets already forecasted to be stretched this year. Global gas markets are set to remain tight in 2025 as demand continues to rise and supply expands more slowly than before the pandemic and energy crisis, the International Energy Agency’s (IEA) latest quarterly Gas Market Report said in January.

“Driven by fast-growing markets in Asia, global gas demand rose by 2.8 percent, or 115 billion cubic metres, in 2024 – well above the 2 percent average growth rate between 2010 and 2020,” the IEA report said. “At the same time, below-average growth in LNG output kept supply tight, while extreme weather events added to market strains.” An S&P Global report said that “The impact on the Asian LNG market will not be small [if Indonesia’s exports are suspended].”