Japan¿s new energy policy poses challenges to Indonesia

Jakarta (The Jakarta Post/ANN) - As Japan¿s biggest trading partner in the energy sector, Indonesia is poised to benefit from Japan¿s new energy mix policy following the March 2011 earthquake and its impact on the country¿s nuclear energy programs.

Such a situation, however, may be short-lived as Japan vows to maintain the trajectory for increased energy efficiency and lower carbon emissions with or without its nuclear power, says Economy, Trade and Industry Minister Yukio Edano.

"Coal and gas for power generation ... I think in the short run will increase. Various countries have different policies and positions on those underground resources. So, we will talk with respective authorities.

"Regarding underground resources, the shale gas in North America is most interesting to Japan....In the immediate future, the availability of shale gas is the greatest interest for us," Edano told The Jakarta Post last week.

Shale gas is a type of natural gas extracted from shale through technology called hydraulic fracturing, which allows gas producers to safely recover natural gas from deep shale formations.

At present, Indonesia is still far away from developing shale gas exploration. The ministry¿s director general for oil and gas, Evita Herawati Legowo, said that preparations were underway for the creation of a legal framework for shale gas development, with around 15 joint study proposals received so far.

One of the companies applying for the joint study was US-based ExxonMobil, which planned to cooperate with a local company, she said. For the technology, she went on, Indonesia would learn from the US, which had been very successful in developing shale gas.

The government has identified potential shale gas reserves in three basins in Sumatra (Balong shale, Telisa shale and Gumai shale), two basins in Java, two basins in Kalimantan and one basin in Papua (Klasafet formation).

Shale gas development aside, Indonesia has been struggling to meet growing domestic demand for natural gas. This has resulted in growing political pressure to reduce exports particularly in the form of LNG to Japan, Indonesia¿s biggest buyer. Recently, upstream oil and gas regulator BPMigas head Raden Priyono said LNG export contracts to Japan would be slashed from 12 million tons (MT) to 3 MT per annum following their expiry in 2010 and 2011.

Japan¿s Kansai Electric Power, Chubu Electric, Kyushu Electric, Osaka Gas, Toho Gas and Nippon Steel Corp. are among companies that would be affected by the reduction in Indonesian exports of LNG. Their contracts cover gas from East Kalimantan, presently the source of around 90 per cent of Japan¿s LNG imports from Indonesia.

Energy experts said problems surrounding the investment climate continued to hamper Indonesia¿s energy production and export capacity.

Aware of increasingly tighter imports and coupled by the recent natural disaster, Japan would finalize a new energy mix doctrine this summer to address those challenges, with nuclear energy at the core of the debate, Edano said.

Based on 2009 figures, nuclear power contributed 29.2 per cent to Japan¿s energy supply, almost in parity with LNG at 29.3 per cent,

which was the largest. Prior to the earthquake, Japan planed to improve energy self-sufficiency by 2030 with nuclear power contributing 53 per cent of generated output and renewable energy increasing to 21 per cent.

Edano said the initial targets would not be reachable in light of rising public concern on the safety of nuclear technology following the catastrophic impact of the earthquake and the tsunami on the Fukushima nuclear power plant.

"After all, the disaster was very big in magnitude. Therefore, at least in the foreseeable future, it will be difficult to build new nuclear power plants, and the government wants to reduce our dependence upon nuclear power generation," Edano said.

The operator of the Fukushima plant, Tokyo Electric (Tepco) said it would post a group net loss in the year to March 31 of 695 billion yen (US$8.32 billion) due to the worst nuclear disaster since Chernobyl.

Most of Japan¿s nuclear reactors are shut down over public safety fears and may not re-open in time for the peak summer months. Edano has threatened to block $13 billion in public funds for Tepco unless the government gets more say in running the company.

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