The economic implications of natural gas infrastructure investment

ABSTRACT

Since 2001, the Indonesian government has issued natural gas master plans annually holding the planned gas infrastructure developments in order to motivate private parties who are not motivated due to the lack of the gas infrastructure increase. Since 2002, there were only three segments of gas pipelines that have been tendered (IEA, 2008) which are Gresik-Semarang and Bontang-Semarang (Kalimantan to Java Pipeline) in 2005, and Cirebon-Semarang in 2006 that have no supply anymore. The current transmission and distribution lines of 3,762.32 km and 4,554.54 km, respectively, are very small compared to developed countries in a similar gas resource position as Indonesia. The paper views the role of natural gas infrastructure for economic growth and energy security in Indonesia. The economic impacts of natural gas infrastructure are analyzed through the Computable General Equilibrium model. The results show that all financing scenarios have positive impacts on the various macro-economic indicators as well as on sectorial output and employment.

KEYWORDS:

• CGE model
• energy investment
• Indonesia
• natural gas
• natural gas infrastructure

Funding

This work was supported by the Dutch Science Foundation under grant number C&B-NFP-PHD.10/14. The content of this article is based on Hutagalung’s PhD research conducted at CSTM University of Twente between 2010 and 2014.

Notes

¹ The length of transmission is not a proper proxy for connectivity, but it can be used as a rough estimation of how mature a nation’s network is. Here the proportion of the transmission length and distribution with the size of the country is relatively small if compared to smaller nations like the United Kingdom or the Netherlands, which have longer transmission lines.

² BPH is a regulatory body who has the responsibility for regulating and supervising the business activities of fuel supply and natural gas transportation business through the pipeline (LNG and other type of gas transportation mode are not included).

³ Institution refers to economic actors in the SAM database, which consist of household, firm (private sector), and government.

Additional information

Funding

This work was supported by the Dutch Science Foundation under grant number C&B-NFP-PHD.10/14. The content of this article is based on Hutagalung’s PhD research conducted at CSTM University of Twente between 2010 and 2014.