Despite the Push for Renewable Energy, Crude Oil Remains a Crucial Energy Source for Indonesia

Indonesia too has big ambitions in terms of green energy. However, these ambitions are not going as planned so far. The table below shows that the government wants renewable energy to deliver 23 percent of the country’s primary energy mix. But, at the end of 2022, renewables only accounted for 12.3 percent of the total.

With installed renewable power capacity of 12,602 megawatt (MW) only at the end of 2022, it is essentially impossible to reach the 23 percent target by 2025. Moreover what is quite demotivating is that the contribution of renewables (to the country’s primary energy mix) only expanded around 0.3 percent between 2021 and 2022. So, if that pace continues, renewables will only contribute around 13.5 percent by 2025.

And besides the slow pace of advances with renewables, it is important for Indonesia to keep its focus on fossil energy as this type of energy is simply less expensive yet more reliable than its renewable counterparts. If fossil fuels are phased out too soon, it jeopardizes pushing Indonesians into poverty, or, it will require huge government spending to compensate for higher energy prices in society.

This brings us to crude oil; the focus of this article. Indonesia was once a powerful player in the crude oil sector, producing around 1.7 million barrels per day (bpd) in the mid-1990s. However, a range of factors have been undermining oil production. The interrelated factors include regulatory uncertainty, red tape, corruption, ageing oil fields, land acquisition trouble, legal uncertainty, and lack of exploration.

Nonetheless, the Indonesian government still has high hopes for the oil sector. In fact, it wants to produce 1 million bpd by 2030. While this too is likely to be a much too ambitious target, it does reveal that Indonesia is in no hurry to ban fossil fuels. For now it targets to become a member of the net zero emissions club by 2060. That is still many decades away, implying there is enough time to tap fossil sources such as oil, gas and coal. Meanwhile, the Investment Coordinating Board (BKPM, which is now also known as the Investment Ministry) recently put the oil & gas sector in its list of priority investments up to 2040, targeting to welcome up to USD $68.1 billion in direct investments in the oil and gas sector up to 2040.

If we take a look at the 2023 oil report that was released by the International Energy Agency (IEA), then we read that oil use for transport is particularly going to decline after 2026 because of the expansion of electric vehicles, growth of biofuels, and fuel efficiency.

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