Bangladesh has been building nearly 10,000 MW capacity coal based power plants solely dependent on imported coal. The Payra 1,320 MW coal fired power plant currently has been in operation (one 660 MW unit in operation) consumes daily approximately 6,000 tonne of coal imported from Indonesia. Other power plants under construction are expected to import coal from Indonesia due to convenient geographical location and comparative price advantage.
Coal supply from Indonesia has been dependent on a number of factors. Coal import from Indonesia is a subject of major price volatility accompanied by a risk of supply disruptions. Hence, alternative coal supply sources (like Australia, South Africa, Far East Russia etc.) have to be arranged for countries solely dependent on imports. But the major limitation that restricts the option for Bangladesh is the distance of the supply sources, higher price, and freight charges.
Indonesian government's decision (announced in late 2021) for a month long coal export ban in January 2022 has been eased on January 11 2022 for a limited number of coal exporters. Indonesian authorities intend to gradually lift the ban as the coal produces and major importers expressed their unease with the export ban. By imposing the sudden coal export ban, Indonesia, the largest steam coal exporter in the world rattled the primary energy market. Indonesia exported 455 million metric tonnes of coal in 2019 and 405 Mt in 2020. The International Energy Agency predicts that Indonesia will remain the major steam coal exporter until 2024. East and South Asian countries including China, Japan, India, South Korea, Philippines are the major coal importers from Indonesia (China, India, Japan and South Korea together received approximately 73 per cent of Indonesian coal in 2021. India imported 15 per cent of Indonesian coal in 2021). Bangladesh has been increasing its coal import from Indonesia and any disruption of coal supply from the source will seriously hit its primary energy balance and power generation capacity.
Indonesian government, despite all odds went for the coal export ban as there had been rising concerns that the country could not meet its own demands for the domestic power plants. 60 per cent of Indonesian power generation is dependent currently on coal. The coal stocks at the Indonesian power generation plants began to fall sharply in the first half of 2021.
Coal producing companies in Indonesia since 2018 have to abide by the 'domestic market obligation (DMO).' The DMO requires that the mining companies should reserve 25 per cent of their coal supply for domestic sale. Indonesia in last 15 years imposed ban on coal export five times due to domestic supply shortfall. On the other hand, Indonesia's domestic coal supply policy is accompanied by a coal price cap at US Dollars 70 per tonne (less than half than the current global market price per tonne). In 2021 coal price hit at one point record US$170 per tonne. The coal mining companies began to shrink their domestic supply ignoring DMO responsibilities. President Joko Widodo administration took a hard line with the coal mining companies and threatened to revoke the export permits and business licences for those who violated DMO responsibilities. The coal export ban immediately affected the global steam coal supply chain and consequently invited price jump in the market. Published reports suggest that the most commonly exported grade of Indonesian steam coal (bituminous coal that is used mainly for power generation) rose to US$ 158 per tonne in October 2021. The coal supply chain heavily dependent on Indonesian coal has been seriously threatened throughout Asia.
During the UN Climate Conference in Glasgow (COP 26) in November 2021, Indonesian President Joko Widodo pledged to phase out coal by 2040 and decommission a quarter of Indonesian coal mines by 2030. Reuters report from Jakarta on January 24, 2022 informed that Indonesian President lunched construction of a US $ 2.3 billion dollar plant for coal gasification in Muara Enim in South Sumatra. The plant is designed to utilise low rank 6 million tonne domestic coal to produce 1.4 million tonne dimethyl ether (DME) annually and optimise the coal resource use. Indonesia has known 2 billion tonne of low rank coal reserve suitable to convert into DME. DME production will help Indonesia to reduce its dependence on import of Liquefied Petroleum Gas (LPG). As reported, Indonesian government has been providing various incentives to attract DME plant development and diversifying commercial fuel productions. DME is a more economical fuel than LPG and Indonesia expects that DME production cost will be US$420/tonne compared with LPG production coat of US$550/tonne. In 2020, Indonesian LPG demand reached 8 million tonne of which 6 million tonne was met from import. The Ministry of Energy and Mineral Resources of the country has been considering to mix coal based dimethyl ether (DME) and LPG as cooking gas and reduce the country's dependence on imported LPG. The DME plant is expected to begin commercial operation in 2024-2025. The state owned energy company Pertamina is expected to produce DME from the plant.
So far, energy infrastructure in Bangladesh has been manly dependent on natural gas. Bangladesh' domestic natural gas productions (present gas production has declined from 2760 MMCFD to 2300 MMCFD) have been declining and it is forecasted that the production would decline faster in 2023 and by 2031 the entire proven gas reserve of the country would be used (unless any major gas field adds to increase the proven reserve). On the other hand, demand for natural gas has been increasing annually and in 2031 gas demand is forecasted to rise to 4200 MMCFD. Unprecedented price hike in LNG market and the present capacity constraint in the country to convert imported LNG to natural gas multiply the natural gas supply problems. A significant capacity of the installed power plants has been idling in the country due to natural gas supply shortages. Import of liquid fuel has been increasing due to primary fuel supply shortages. Gas and power utility companies have been asking more prices of gas, electricity and government subsidy.
Unless affordable and quality commercial fuel and electricity supply is ensured, the economic growth momentum of the country would be challenged. On the contrary, government's policy makers have been repeatedly stating that unlimited subsidy for energy commodities will not be secured.
In the backdrop of the challenges, experts favour a balanced fuel mix including maximum use of all the potential commercial fuel sources available in the country. For several years the domestic fuel (coal, natural gas) source exploration and development received little attention. Now it is time for revisiting the policy and try to optimise domestic commercial energy resource use taking advantages of new technology and management skills.
Mushfiqur Rahman is a mining engineer and writes on energy and environment issues.