Indonesia Fights $9.4 Billion Energy Drain: Inside the Radical Pivot to Coal-to-DME Downstreaming

JAKARTA, Investortrust.id — Indonesia is launching a high-stakes offensive against its ballooning energy trade deficit, pivoting toward "coal-to-DME" technology to replace the Liquefied Petroleum Gas (LPG) that powers millions of households. The move comes as the archipelago’s dependence on foreign cooking fuel hits a breaking point, with imports now devouring more than three-quarters of the national supply.

For global markets, Indonesia’s shift signals a massive internal reallocation of its coal reserves—the world’s largest thermal coal exporter is now prioritizing domestic "gasification" over raw exports. If successful, the $9.4 billion annual drain on foreign exchange reserves will evaporate, stabilizing the Rupiah and fundamentally altering Southeast Asia's energy trade balance. However, the project's viability is a high-wire act, tethered to fluctuating coal prices and the government's ability to overhaul a deeply entrenched subsidy system.

The Multi-Billion Dollar Subsidy Trap

Energy Minister Bahlil Lahadalia is sounding the alarm on the fiscal hemorrhage caused by imported fuel. Speaking after an inauguration ceremony at the Ministry of Energy and Mineral Resources in Jakarta last week, Bahlil revealed the sheer scale of the crisis.

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"Our foreign exchange spent every year just to buy LPG is around Rp 120 trillion to Rp 150 trillion ($7.5 billion to $9.4 billion). Especially if world oil prices rise, it will certainly be even larger," Bahlil said.

The fiscal strain is visible in the national budget. Government data shows LPG subsidies surged from Rp 67.6 trillion ($4.2 billion) in 2021 to an estimated Rp 87 trillion ($5.5 billion) for 2025. Minister Bahlil remains adamant that domestic conversion is the only exit strategy, stating, "There is no other way for efficiency other than finding a path so that raw materials available domestically can be converted to replace LPG."

The $7.3 Billion Downstreaming Blitz

The spearhead of this transition is the Tanjung Enim DME facility in South Sumatra, a cornerstone of President Prabowo Subianto’s second phase of national downstreaming projects. Valued at a combined Rp 116 trillion ($7.3 billion) across 13 initiatives, the DME plant will be operated by PT Bukit Asam Tbk (PTBA), the state-owned coal miner, with Pertamina, the national energy giant, acting as the primary off-taker.

Rosan Roeslani, CEO of BPI Danantara, the country's newly formed sovereign wealth fund manager, detailed the strategic importance of the site during a groundbreaking event in Cilacap, Central Java, on April 29, 2026.

"The development of coal processing facilities into Dimethyl Ether or DME in Tanjung Enim serves as a substitute for LPG imports, where we still import 80% of our needs," Rosan explained. The facility aims to churn out 1.5 million tons of DME annually, potentially replacing a massive chunk of the 8.2 million metric tons of LPG currently sourced from abroad.

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The "Make or Break" Economics

Despite the political momentum, experts warn that the economics of "gasifying" low-calorie coal are notoriously tight. Iwa Garniwa, an energy professor at the University of Indonesia, noted that DME production is "highly sensitive" to coal prices. He argues that if coal stays above $60 per ton, DME cannot compete without heavy government intervention.

To make the transition stick, Garniwa is calling for a move away from subsidizing the fuel itself and toward a "benefit-based" system using the national social welfare database (DTKS). Without this reform, the incentive for households to switch from subsidized "3kg green tanks" of LPG to DME or electric stoves will remain weak.

Beyond Energy: The Industrial Ripple Effect

The DME project is part of a broader industrial reawakening. The government is simultaneously breaking ground on nickel-based stainless steel facilities in Morowali with Tsingshan Group and iron ore-to-steel plants in Cilegon with Xin Hai Group.

From producing 330,000 metric tons of domestic asphalt to reducing reliance on imported copper and gold smelting, Indonesia is attempting to build a self-sustaining industrial loop. The success of these projects will determine if the country can transform from a raw commodity exporter into a sophisticated manufacturing hub.