Energy in Indonesia: Price Gap Challenge for Converting Coal into Dimethyl Ether
Indonesia imports the vast majority of the liquified petroleum gas (LPG) it consumes. This obviously drains the foreign exchange reserves. But considering Indonesia has massive coal reserves, the gasification of coal can be an interesting alternative. By converting low-quality domestic coal into Dimethyl Ether (DME), the country can reduce purchases of expensive LPG from overseas.
One might remember that former Indonesian President Joko Widodo performed a ceremonial groundbreaking ceremony in 2022 for a coal-to-DME project in Tanjung Enim (South Sumatra). Originally, this project involved a partnership between state-controlled coal miner Bukit Asam, Pertamina, and US chemical giant Air Products. Air Products pledged to invest around USD $2 billion to build, own and operate the air separation, gasification, syngas clean-up, utilities and methanol production assets to produce methanol. This project was supposed to be completed by late 2024 or 2025.
However, in 2023, Air Products unexpectedly withdrew from the project as it prioritized its focus on hydrogen and ammonia investments in other countries. This means the project had lost a technology partner and much-needed funding, effectively freezing the project. However, according to the latest reports, the Indonesian government has now finalized a new consortium and technology framework under Danantara (the national sovereign wealth fund). But while the new groundbreaking ceremony is targeted to be held in Q1-2028, there remains the need for new feasibility studies and securing new partners (possibly from China or Europe) in order to launch the project.
This coal-to-DME project is part of the government's downstreaming agenda. Currently, Indonesia spends roughly IDR 80 trillion (approx. USD $4.7 billion), annually, to import LPG, with the majority originating from the United States. By turning coal into a gas that can be used for cooking, the government aims to stop the flow of cash overseas to buy foreign gas and utilize its massive coal reserves that would otherwise be difficult to export as the world moves away from coal-fired power (hence there is the plan to retire coal-fired power plants across Indonesia).
Table 1; Indonesia's Consumption and Import of LPG (in million tons):
| 2021 | 2022 | 2023 | 2024 | 2025 | |
| Domestic Consumption |
8.36 | 8.56 | 8.71 | 8.90 | 9.24 |
| Import | 6.34 | 6.74 | 6.95 | 6.91 | 7.49 |
Source: Ministry of Energy and Mineral Resources
Arsal Ismail, CEO of Bukit Asam, said the company is optimistic about starting physical construction for this prestigious project in Q1-2028. He explained that the facility is designed with a capacity of 1.4 million tons of DME per year. This gasification process is claimed to increase value-add by 4.3 times compared to direct coal sales. Bukit Asam will serve as the operator and coal supplier, while fully state-owned energy giant Pertamina will act as the off-taker (buyer). The coal that will be supplied by Bukit Asam is low-grade (low-calorie) coal.
MIND ID President Director Maroef Sjamsoeddin emphasized that this DME project has remained a priority for the government in terms of strengthening national energy security (MIND ID is the Indonesian state-owned enterprise holding company for the national mining industry). Nevertheless, he acknowledged that the DME project must navigate a complex cross-sectoral orchestration. Technical studies, regulatory certainty, and long-term policy support are prerequisites that have not yet been fully met to accelerate the project.
The Price Gap Challenge
Economists and experts expressed concerns over financial viability, though. The Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, stated that DME projects face serious financial viability challenges. According to him, the production cost of DME is in the range of USD $614 – USD $651 per ton, which is well above the price of imported LPG, which stands at USD $431 per ton. With a price gap of approximately 42 percent, DME is a more expensive option compared to bringing in LPG from abroad.
Therefore, Yudhistira said that DME is not a solution to the LPG import problem. Moreover, besides being more expensive, it actually only increases Indonesia's dependence on coal. He also highlighted the absence of a specific subsidy scheme as one of the key factors making investors reluctant to enter. Without fiscal support, the cost burden could potentially be shifted to the state budget and thus widen the deficit.
The massive investment that is required when developing coal-to-DME projects remains the primary challenge. This is also reflected in the results of feasibility studies conducted by several coal mining companies. Based on those studies, the selling price of DME products is higher than the benchmarks set by the government, and it is also higher than the price of imported LPG.
East China Engineering Science and Technology Co. Ltd. (ECEC), which submitted an initial coal-to-DME proposal in November 2024, is known to have proposed an indicative processing service fee of USD $412 - USD $488 per ton. However, this figure is higher than the Ministry of Energy and Mineral Resources' expectation of USD $310 per ton that it is willing to pay.
But if all costs are included (such as the price of coal required in the process), then the resulting final DME price is valued at USD $911 - USD $987 per ton. This too is much higher than the DME benchmark proposed by that Ministry in 2021 (at USD $617 per ton). This implies that it would require significant subsidies (essentially tax money) to close the gap. And, rather unfortunately, this final DME price is significantly more expensive than the average cost of LPG imports to Indonesia, which was recorded at USD $435 per ton in 2024.
Still, some argue that coal-to-DME downstreaming projects remain relevant from an energy security perspective. With national LPG consumption projected to reach 10 million metric tons in 2026, while domestic production is only around 1.3 million - 1.4 million tons, the dependence on imported products leaves energy security vulnerable. DME can be optimized as a substitution, especially for the household sector. But while it can reduce import volumes, it cannot completely replace LPG or serve as a sole solution.
And so, the problem with coal gasification projects into DME is the economic feasibility; the lack of competitive pricing policies and clear incentive schemes, making the resulting product difficult to compete with imported LPG.
Table 2; Coal Mining in Indonesia (in million tons):
| 2021 | 2022 | 2023 | 2024 | 2025 | |
| Production | 614.0 | 687.4 | 775.2 | 836.13 | 817.48 |
| Domestic Market Obligation |
113.04 | 215.81 | 212.87 | 232.64 | 246.88 |
Source: Ministry of Energy and Mineral Resources