Indonesia steps up coal gasification amid fuel shocks

As the Middle East crisis rattles global fuel markets, Indonesia needs to pull in more investments and technology transfers to accelerate a coal gasification program that can shield its economy from the import costs of volatile liquefied petroleum gas, or LPG, analysts said.

Indonesia is a net exporter of coal and one of Asia's largest coal consumers. Its vast coal resources enable it to produce higher-value products like dimethyl ether, or DME — a colorless gas synthesized from coal-derived methanol that can be used as an alternative to LPG, a widely used cooking fuel.

However, there is still no coal-to-DME project operating commercially in Indonesia due to high operating costs.

Ahmad Erani Yustika, secretary-general of Indonesia's Ministry of Energy and Mineral Resources, said on Tuesday that the government is developing domestic energy sources to cut Indonesia's reliance on imported fuels and strengthen national energy independence.

Yustika said a coal gasification-based DME project remained under consideration for investment by Danantara, Indonesia's sovereign wealth fund.

Fahmy Radhi, a lecturer and energy economist at Gadjah Mada University in Yogyakarta, called for the government to issue policies to attract investors in the coal gasification industry. Radhi cited Indonesia's Domestic Market Obligation policy, which requires producers of coal and other resources to allocate a portion of their production for domestic use before exporting it.

He said a clear tax mechanism for coal exports is also needed to ensure a sufficient supply of coal for local needs.

Elias Ginting, chairman of the Association of Indonesia Coke Industry, said Indonesia can cooperate with China on coal downstreaming, such as converting coal into DME.

"We need innovation and technology, we need technology transfer. And at this time, the best of them come from China," Ginting told China Daily.

In March 2025, Indonesian President Prabowo Subianto met with the Task Force for Accelerating Downstreaming and National Energy Resilience to discuss the development of coal gasification projects on the islands of Sumatra and Borneo. By producing its own DME, Indonesia can cut its reliance on imported LPG. Indonesia imports over 7 million tons of LPG each year, about 20 percent of which is sourced from the Middle East.

Tri Winarno, director general of Minerals and Coal at Indonesia's Ministry of Energy and Mineral Resources, said coal downstreaming is part of the country's strategy to develop local energy resources.

"Indonesia views the energy transition as needing to be carried out in a realistic, gradual, and just manner," Winarno said on May 11 during the opening of the Indonesia Coal and Energy Expo in Jakarta.

He said China is becoming increasingly central to Indonesia's downstream strategy.

Lei Huang, vice-president of China Coal Technology & Engineering Group, said at the expo that Indonesia "has a solid industrial foundation and huge development potential" as a major coal producer and exporter, and that there are opportunities to deepen China-Indonesia cooperation on coal downstream projects.

Promoting coal gasification, however, may not align with Indonesia's climate commitments. At the G20 Summit held in Brazil in November 2024, Prabowo announced that Indonesia will achieve net-zero emissions by 2050, phase out coal plants within the next 15 years and build 75 gigawatts of additional renewable energy.

But according to Putra Adhiguna, managing director of the Energy Shift Institute, an Australia-based energy finance think tank, climate mitigation measures such as carbon capture and storage may help reduce emissions, but they will also come at an extra cost. He added that DME is expensive to produce, casting doubt on the economic viability of such plants.

Leonardus Jegho is a freelance journalist for China Daily.

Contact the writers at prime@chinadailyapac.com