Greenpeace and Bali hotels work together in energy efficiency program

[ JakartaPost ]

BENOA, Bali (JP): Hotels in Bali, working together with environmental organization Greenpeace, launched Tuesday an energy efficiency program aimed at promoting responsible and climate friendly tourism on the resort island.

Greenpeace Southeast Asia Climate and Energy Campaigner, Shailendra Yashwant, said the program, called “Switch off, Unplug, Enjoy – Energy Efficient Bali”, set an ambitious target of lowering hotel electricity consumption by 40 percent within a year.

“We are very ambitious, but it is very possible to achieve,” Shailendra said.

The program was launched aboard the Greenpeace flagship Rainbow Warrior, currently docked in Benoa Harbor off Nusa Dua, where the United Nations conference on climate change is underway.

Environment Minister, Rachmat Witoelar, welcomed the initiative. “Undoubtedly, like any other sector, tourism potentially contributes to the problem of climate change. On the understanding that everyone must do their share to reduce our collective carbon footprints, the Indonesian government welcomes this Greenpeace initiative to kick-start a conscious effort to help offset some of the problems associated with inefficient energy use,” he said.

The United Nations World Tourism Organization (UNWTO) says international tourism contributes some 5 percent to global carbon emissions. Based on UNWTO tourism market forecast, if no mitigation measures are taken, the industry’s carbon emissions could grow by 150 percent in the next 30 years.

Greenpeace has surveyed 15 hotels in Nusa Dua, Bali, under the program, to see their existing energy and environmental conservation practices.

“There are a lot of things that can be improved, such us using renewable energy for power sources. Even though the sun shines all year round, hotels here do not use solar power water heaters,” Shailendra said.

Sulistyowati, deputy assistant to Environment Minister for the impacts of climate change affairs, says hotels in Indonesia, including in Bali, have not been energy efficient.

“The designs of the hotels should be made in a way that could save energy. The more windows, for instance, the less energy will be spent on lights and air conditioning,” she said.

She added that the latest study on hotels’ contribution to global warming showed that lighting accounted for 70 percent of their contribution, compared to water (12 percent), greenhouse gasses (30 percent) and waste (65 percent).

Data from the Bali office of state electricity company, PLN, reveals that hotels – especially in Badung regency and Denpasar city -- consume 70 percent of the total electricity supply, which reaches 439 megawatts during peak hours. Nusa Dua resort area, the venue of the UN climate conference, alone consumes over one third of the power allocated for the hotels.

Shailendra said the energy saving program will consist of training on energy conservation, water conservation and waste management for hotel staff. Greenpeace will also provide energy efficiency and energy conservation awareness for tourists and will persuade the Indonesian government to provide incentives and subsidies that allow hotels to invest in renewable energy.

Urs Klee of the Bali Hotels Association said that hotels welcomed the program, which could give a medium 300-room-hotel savings of up to US$30,000 per year by installing solar water heaters.

“Using renewable energy saves money. The (establishment) costs will be returned within two to three years,” he said. (Ary Hermawan and Prodita Sabarini)

President asks private sector to develop biofuel

[ Antara ]

Nusa Dua (ANTARA News) - President of Indonesia Susilo Bambang Yudhoyono Tuesday appealed to the private sector to increase its role in developing biofuel which is environment-friendly and more economical than fossil fuel.

The president made the appeal when visiting a Sugar Group Companies (SGC) pavilion in a Cool Energy Exhibition held on the occasion of the United Nations Framework Convention on Climate Change (UNFCCC) on Tuesday.

"I hope it will be developed further," he said.

Biofuel was far more economical than fossil fuel, SGC President Director Gunawan Yusuf said in reply to the head of state`s question.

"Without government subsidy premium-grade gasoline is currently priced at 72 dollar cents or around Rp6,600 per liter, while ethanol is only priced at Rp5,000 to Rp6,000 per liter," Gunawan said.

In the long run, another 2.5 million hectares of land would be needed to develop biofuel to replace fossil fuel.

The government would use idle land which currently covered an area of 7 million hectares to meet the need for land, he said.

Separately, on Tuesday, Chief of the National Biofuel Development Team Al Hilal Hamdi said the team intended to make use of another 5 to 6 million hectares of idle land to develop biofuel until 2012. The land is located outside Java.

"We must develop the mass production of biofuel. Therefore, the government has set itself the target of using another 6 million hectares of land until 2012," he said.(*)

More bad rap on Asian biofuels

[ Asia Times ]

by Marwaan Macan-Markar

BANGKOK - European Union (EU) demand for Asian-produced biofuels, particularly palm oil, is coming at a high social and environmental cost, a report released on Tuesday by the United Nations Development Program (UNDP) warns.

The UN agency in its annual "Human Development Report 2007/2008" cautioned countries in the region against following the lead taken by Indonesia and Malaysia, the main producers of palm oil as a biofuel.

"Expansion of cultivation of [oil palm] in East Asia has been associated with widespread deforestation and violation of human rights of indigenous people," said the report, entitled "Fighting climate change: Human solidarity in a divided world".

"Since 1999, EU demand for palm oil, primarily from Malaysia and Indonesia, has more than doubled to 4.5 million tons, or almost one-fifth of world imports," added the 384-page report. "Opportunities for supplying an expanding European Union market have been reflected in a surge of investment in palm oil production in East Asia."

UNDP climate change advisor Martin Krause said at the launch of the report in Bangkok: "There are a lot of safeguards that have to be built in if you want to make palm oil production environmentally sustainable. The debate on this has just begun."

The concerns echo a similar red flag raised last week by another report, "Up in Smoke: Asia and the Pacific", released by a coalition of British development and environmental groups. The rapid growth of palm oil plantations has resulted in massive deforestation in Indonesia, which has led to large amounts of carbon dioxide trapped in the forests being emitted into the atmosphere, stated that report.

"As a result of deforestation, some of which is for palm oil, Indonesia is the third-largest emitter of carbon dioxide, after the USA and China," it said. "Deforestation to make way for large-scale mono-cropping of energy crops obliterates the 'green credentials' of the biofuel."

These cautionary views about the downside of palm oil are expected to feed into discussions at an international climate change meeting to be held in early December in the Indonesian resort-island of Bali. The United Nations Climate Change Conference will be attended by representatives from more than 180 countries with a mission to craft a blueprint for global action to forestall the emerging environmental catastrophe caused by climate change.

The global cultivation of palm oil had reached 12 million hectares by 2005, according to the UNDP, which was almost double the plantation area in 1997. The agency notes that production is dominated by Indonesia and Malaysia, with the former registering the fastest rate of increase anywhere in terms of forests converted into palm oil.

According to the British report, the Southeast Asian archipelago has nearly 6 million hectares of land under palm oil cultivation and Jakarta has set its sights on further expansion. "In 2007, the Indonesian government signed 58 agreements worth US$12.4 billion in order to produce about 200,000 barrels of oil-equivalent biofuel per day by 2010."

Environmentalists view the forests of Indonesia and others in Asia, now under severe threat of being converted into palm oil plantations, as essential to absorb global carbon dioxide emissions. As important are peatlands, which are part of the region's natural forests and are likewise being destroyed at a rapid rate.

"Peatland forests are traditional carbon storehouses. Typically they store up to 30% carbon dioxide," said Shailendra Yashwant, climate and energy campaigner for global environmental lobby Greenpeace in Jakarta. "A 4-million hectare peatland forest in a province in northern Sumatra stores 14.6 gigatons of carbon dioxide."

Greenpeace studies reveal that nearly 28 million hectares of forests have been destroyed in places like Sumatra, Suleweisi and Kalimantan in Indonesia since 1990. Currently thousands of hectares of peatland are being cleared for palm oil plantations - all of which are owned by private companies.

The attraction to palm oil plantations, which preceded the emerging demand for biofuels from the EU, stems largely from the relative ease with which they can be grown and the economic returns they generate. Prices for palm oil have held up well over the years and its not a labor-intensive crop like many other tropical commodities.

As such, other Southeast Asian countries including Myanmar, Thailand, Cambodia, Vietnam and the Philippines are beginning to follow Indonesia's and Malaysia's slash-and-burn model of palm oil production. The Thai government has set its sights on having 1.6 million hectares under oil palm cultivation in the next two decades, a nearly five-fold increase from the current 320,000 hectares.

It's still unclear how much of that earmarked cultivation area will require clear-cutting. The UNDP pointed to some success stories, where environmentally friendly and socially responsible ways of cultivation have taken root in small-scale agro-forestry ventures. However to date, most of that green friendly production has taken place in West Africa, not Asia.

Bali's climate conference

[ inside indonesia ]

Rich countries should pay big bucks to reduce emissions in the developing world

Frank Jotzo

Source: http://siteresources.worldbank.org/INTINDONESIA/Resources/Environment/Climate Change_ExecSum_EN.pdf

Climate change has climbed up the agenda in the global public and policy discussion. Indonesia is no exception, as the country is vulnerable to future climate change impacts and is a major greenhouse gas emitter.

The spotlight is on Indonesia as the host of this year’s UN climate conference. Over 10,000 delegates, including ministers and heads of state, will descend on Bali in December. The talks are shaping up as the launching pad for negotiations for a new international agreement, after the first period of the Kyoto Protocol runs out in 2012.

Science shows more strongly than ever the risk of dangerous climate change. It is no longer just an environmental problem, but a challenge to development and economic prosperity. People in developing countries like Indonesia are most vulnerable. To limit the risk of dangerous climate change, the goal being discussed is a 50-80 per cent reduction in global greenhouse gas emissions by 2050 compared to levels in 2000. Global emissions rose by 70 per cent from 1970 to 2004. Continuing on this path would set the globe on a trajectory of rapid climate change.

To turn ever rising global emissions around is a daunting task, and all countries need to be involved if it is to happen. Rich countries are historically responsible for greenhouse gases already in the atmosphere and can more readily pay for action. But the bulk of the increase in greenhouse gas emissions each year comes from developing countries. The international discussion tends to focus on China and India as the global centres of growth, but Indonesia has huge emissions from deforestation, and emissions from energy use are growing swiftly as well.

Impacts and Indonesia’s vulnerability

Climate change is not just an issue of higher temperatures and sea-level rise, but of flow-on effects throughout the climate system, in particular changes in rainfall patterns. Indonesia can expect longer dry seasons and shorter but more intense wet seasons. That means greater risk of flooding and droughts. Agricultural growing patterns will change, and with that come risks to regional food security.

Sea-level rise can cause sea-water inundation, with damage to agricultural growing areas and urban infrastructure. Higher temperatures worsen the spread of water- and vector-borne diseases, and have direct health effects through increased heat stress. Impacts are expected to differ strongly between regions. In some ways climate change could be beneficial, but overwhelmingly the impacts disrupt established systems.

Jakarta flood 2007 - Taxi drowned Source: gajahmada - flikr / Wikimedia Commons

Climate change will affect the poor more than the rich, because they are often more vulnerable to disruptions to their physical environment. Flooding in Jakarta in 2006, for example, hit poor flood-prone areas whose residents could not readily pay for health care or reconstruction of their homes.

Adapting to climate change will be important for continued development and economic prosperity. Infrastructure will need upgrading, from transport networks to flood defences. Improvements will be needed in public health, emergency management, agricultural extension, urban planning and so forth.

But spending scarce public resources in preparation for long-term future risks is problematic. In Indonesia as elsewhere it is difficult to justify spending big money on structural improvements for climate change, when there are many more pressing concerns in areas like health and education.

Even further down the list are investments to reduce greenhouse gas emissions, whose benefits are dispersed over the whole globe and over future generations. This leads us to Indonesia’s greenhouse gas emissions.

Deforestation

Indonesia’s carbon emissions made headlines earlier in 2007 when a report entitled ‘Indonesia and climate change’ pointed out that Indonesia is the third largest greenhouse gas emitter, behind the United States and China, and ahead of Brazil, Russia and India. This is on account of land-use change, mainly deforestation. Clearing land releases carbon stored in trees and in biomass below ground into the atmosphere as carbon dioxide. This occurs either by fire or by later decomposition of wood and wood products. Peatland fires in Kalimantan and Sumatra are a major source of carbon dioxide emissions, and also a big factor in the ‘Asian haze’.

To substantially slow global deforestation will require tens of billions of dollars per year, not tens of millions

Deforestation is thought to account for almost 20 per cent of current total global greenhouse gas emissions, with Indonesia and Brazil the largest sources. Tropical forests are often converted for private economic gain that is small compared to the amount of carbon dioxide released, when emissions are valued at prices paid in emerging carbon markets in developed countries.

Plans for an international incentive scheme against deforestation are expected to figure prominently at the Bali meeting. Mechanisms need to be devised that have real prospects of reducing deforestation and that encourage financial flows from rich countries. Different models are in the debate, including a global fund to pay for avoided deforestation or, alternatively, creating tradable offsets for avoided deforestation. Each model has its own difficulties, from how to estimate the amounts of emission saved to how to allocate funding and check it is spent properly.

Indonesian provinces that have not yet begun to exploit their natural forest resources heavily may be interested in carbon payments as an alternative to large-scale land conversion. Large amounts of money will be needed, to essentially buy out competing economic interests. Incentives to retain forests need to outweigh the opportunity costs of foregoing other development options.

Australia recently pledged A$200 million over five years to support projects aimed at reducing net forest loss, principally in Indonesia. This sends a positive signal, but by itself it is the proverbial drop in the ocean. To substantially slow global deforestation will require tens of billions of dollars per year, not tens of millions. And at current rates of forest conversion, little time is left.

Fossil fuel emissions

The largest share of greenhouse gas emissions globally is carbon dioxide from burning coal, oil and gas. Indonesia’s fossil fuel emissions account only for a little under 1.5 per cent of the world total, about the same as Australia. But they are rapidly rising. They are now two and a half times larger than in 1990, and over that period have grown at a slightly faster rate than those of China. For the world as a whole, the rise since 1990 is about one third.

Remarkably, Indonesia’s emissions have risen faster than GDP growth, in contrast to most other countries. Over recent years, there has been a marked shift in Indonesia’s energy mix toward high-emissions sources. Most of the increased energy demand is met using coal, the most greenhouse gas intensive fuel, and oil products for transport. By contrast, use of gas (which has relatively low emissions) has stagnated since the financial crisis, and growth in renewable energies such as geothermal has been slow.

There are straightforward economic reasons for this. Indonesia has plentiful coal reserves that are easily accessible, and this is the cheapest fuel for electric power generation and some heavy industries. Gas is more profitable to export into booming markets in East Asia than to sell domestically. Investment in renewables suffers from high up-front expenditure and long payback periods, which is a particular problem when investors feel uncertain about future laws and regulations in Indonesia.

More coal expansion is planned. The government’s current answer to the looming electricity supply crisis is a ‘crash program’ for expansion of base-load capacity through coal-fired power plants. The plan is to install 10,000 MW of new coal-fired generating capacity by 2009/10 (existing on-grid capacity is around 23,000 MW), using low-grade coal. This will effectively lock in new high-carbon infrastructure for many decades.

Rich countries are historically responsible for gases already in the atmosphere and can pay for action. But the bulk of the yearly increase comes from developing countries

Yet there are large opportunities to follow a lower-carbon path. They include more efficient, energy-saving equipment; greater use of gas rather than oil or coal; expansion of renewable energy sources like geothermal and hydropower and, more controversially, large-scale biofuels production.,Even nuclear power remains in the discussion for Indonesia despite safety and security concerns. The common feature of most of these options however is that they are more expensive than the high-emissions alternatives.

The way forward

Curbing Indonesia’s emissions must be part of an effective future global response. Yet Indonesia, like other developing countries, has much more pressing and immediate concerns that need scarce public resources. Reducing greenhouse emissions is a global public good; its benefits are dispersed over everyone on the planet and future generations.

The logical conclusion is that rich countries need to pay for greenhouse gas reduction measures in developing countries like Indonesia on a big scale. This is far from easy to achieve. Issues of international equity and incentives to free-ride on other countries’ efforts remain tricky.

But political will to find a solution is growing. The Kyoto Protocol approach could be broadened using a portfolio of different commitment options, and made more flexible to accommodate individual countries’ preferences and circumstances. The Bali climate conference must mark an important step, and Indonesia as the host is in a good position to help the process along. ii

Frank Jotzo (frank.jotzo@anu.edu.au) is a research fellow at the Research School of Pacific and Asian Studies, Australian National University. He specialises in the economics of climate change and climate policy.

Indonesia: Energy profile

[ Energy Publisher ]

Indonesia is the only Southeast Asian member of OPEC, although the country became a slight net oil importer in 2004.

Indonesia has the largest population in Southeast Asia and the fourth largest population in the world (behind China, India, and the United States). In 1962, Indonesia joined the Organization of the Petroleum Exporting Countries (OPEC) and became a net importer of oil in 2004 .

Oil

Indonesia’s oil production has declined in recent years. According to Oil & Gas Journal (OGJ), Indonesia had 4.3 billion barrels of proven oil reserves as of January 2007. Oil production in Indonesia has decreased steadily during the last decade, owing to disappointing exploration efforts and declining production at Indonesia’s large, mature oil fields.

Sector Organization

In October 2001, Indonesia’s oil sector experienced significant reforms with the passage of the new Oil and Gas Law No. 22/2001. The law forced state-owned oil company Pertamina to relinquish its role in granting new oil development licenses and limited the company’s monopoly in upstream activities. Pertamina’s regulatory and administrative functions were transferred to the new regulatory body, Badan Perlaksanaan Minyak Gas, or BP Migas. Pertamina was formed into the limited liability company PT Pertamina (Persero) by presidential decree in 2003, although it remains a state-owned entity. PT Pertamina is laying the groundwork for full privatization to take place at some point in the future.

Indonesia’s oil sector is dominated by several international oil companies (IOCs). The single largest oil producer is Chevron, which controls Caltex Pacific and Unocal’s former Indonesian assets. BP, ConocoPhillips, ExxonMobil, and Total are also significant oil producers in the country, with China’s state-owned companies PetroChina and China National Offshore Oil Corporation (CNOOC) also having a considerable presence.

The liberalization of Indonesia's downstream oil and gas sector has been under discussion for several years. Pertamina maintained its retail and distribution monopoly for petroleum products until July 2004, when the first licenses for retail sale of petroleum products were granted to BP and Petronas of Malaysia. However, Pertamina maintains a dominant position in Indonesia’s downstream sector, operating all eight of the country’s refineries. The government is still promising to open the sector to full competition, although progress has been slow to date.

Indonesia historically has maintained consumption subsidies for domestic retail fuel consumers, with products being sold at a discount from world market prices. After a series of modest increases in petroleum prices over the past few years, President Yudhoyono announced a sharp rollback of subsidies in September 2005. Prices of retail gasoline and diesel rose by an average of 125 percent as a result. Despite this one-time move, fuel consumption subsidies still take up a sizeable portion of government expenditures.

Exploration and Production

Indonesia’s largest oil producing fields are mature and declining in output. During 2006, Indonesian oil production averaged 1.1 million barrels per day (bbl/d), of which 81 percent, or 894,000 bbl/d, was crude oil. Indonesia’s total oil production has dropped by 32 percent since 1996, as many of the country’s largest oil fields continue to decline in output. Indonesia’s current OPEC crude oil output quota is set at 1.45 million bbl/d, well above the country’s production capacity. During 2006, Indonesia’s oil consumption reached 1.2 million bbl/d, making it a slight net importer of oil for the year.
Natural Gas

Natural gas production has increased in recent years in Indonesia, although the country is facing a declining global LNG market share.

According to OGJ, Indonesia had 97.8 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2007. Indonesia is the tenth largest holder of proven natural gas reserves in the world and the single largest in the Asia-Pacific region. According to the Indonesian government, more than 70 percent of the country’s natural gas reserves are located offshore, with the largest reserves found off Natuna Island, East Kalimantan, South Sumatra, and West Papua (also known as Irian Jaya).

Sector Organization

As with the oil sector, Indonesia’s natural gas sector underwent reforms with the passage of the Oil and Gas Law No. 22/2001. State-owned Pertamina was forced to relinquish its monopoly status in upstream natural gas projects, and BP Migas now holds primary regulatory authority in the sector. PT Pertamina, the limited liability corporation that was formed from its predecessor, remains an important player in Indonesia’s natural gas exploration and production activities. PT Pertamina and six major international companies dominate Indonesia’s natural gas industry, accounting for more than 90 percent of the country’s production. The six companies are: Total (estimated market share in 2004, 30 percent), ExxonMobil (17 percent), Vico (a BP-Eni joint venture, 11 percent), ConocoPhillips (11 percent), BP (6 percent), and Chevron (4 percent). Natural gas transmission and distribution activities are carried out by the state-owned utility Perusahaan Gas Negara (PGN).

Exploration and Production

In 2004, Indonesia produced 2.6 Tcf of natural gas while consuming 1.3 Tcf. Also in 2004, Indonesia exported about 1.2 Tcf of liquefied natural gas (LNG) to Japan, South Korea, and Taiwan. Historically, Indonesian natural gas production has been geared toward export markets, but the country has made an effort to shift natural gas toward domestic uses in recent years as a substitute for the country’s declining oil output. However, Indonesia’s limited natural gas transmission and distribution network remains an obstacle to further domestic consumption.

Indonesia’s two major LNG production plants, Arun and Bontang, have experienced declining production in recent years.

To help make up for this shortfall, Indonesia has vigorously engaged in natural gas exploration activities, as it strives to meet its long-term LNG contract obligations and also to satisfy increasing domestic demand. Several new projects are under development, the most high profile of which is the Tangguh LNG project in West Papua (see the LNG Section below for further details).

Pipelines
Domestic System

PGN operates more than 3,100 miles of natural gas distribution and transmission lines, comprising nine regional networks. The networks have limited interconnectivity, which has restrained further growth of domestic natural gas consumption. PGN has plans to build four additional domestic natural gas pipelines to improve the country’s natural gas network connectivity, known as the Integrated Gas Transportation System (IGTS). The IGTS is designed to eventually link the islands of Sumatra, Java, and Kalimantan via a 2,600-mile pipeline. The World Bank, Asian Development Bank, and PGN are jointly financing the project. So far, the planned interconnection is partially complete, and is scheduled to be fully operational in 2010 with a capacity to transport 2.2 Bcf/d of natural gas.

International Connections

Indonesia began exporting natural gas via pipeline in 2001, with the opening of the 400-mile, 325-million cubic feet per day (MMcf/d) subsea pipeline from West Natuna to Singapore. In August 2002, Indonesia began delivering 250 MMcf/d of piped natural gas to Malaysia’s Duyong platform. And in August 2003, a second natural gas connection to Singapore was opened when the South Sumatra-Singapore pipeline was completed. This line reached 350-MMcf/d maximum capacity during 2006 and will deliver natural gas to Singapore over a 20-year contract.

Indonesia has played a leading role in discussions of the proposed “Trans-ASEAN Gas Pipeline” (TAGP), which envisions the establishment of a transnational pipeline network linking the major natural gas producers and consumers in Southeast Asia. The TAGP concept was initially proposed in 1997 as part of ASEAN’s “Vision 2020” initiative. In July 2002, energy ministers from the ASEAN countries signed a memorandum of understanding to study the viability of the project, although much work remains to be completed to fully realize the project’s goals.

Liquefied Natural Gas

Media reports suggest that Indonesia was surpassed by Qatar in 2006 as the single largest exporter of LNG. Indonesia is a leading LNG exporter. Indonesia was the world’s largest exporter of LNG in 2005, although some reports suggest that the country was surpassed by Qatar sometime in 2006. During 2005, Indonesia exported 23 million tons (MMt, or 1,123 Bcf) of LNG, or about 16 percent of the world total.

Indonesia produces LNG from two terminals: the Bontang facility in Badak, East Kalimantan and the Arun plant in North Sumatra.

The Bontang LNG terminal was Indonesia’s first to begin commercial operations, shipping its first LNG exports in 1977. The eight-train Bontang plant is the largest LNG facility in the world, with a capacity to produce 21.6 MMt/y (1.1 Tcf/y). However, production has stood below full capacity in recent years, with 2004 output estimated at 19.6 MMt (955 Bcf) of LNG. The Bontang terminal is operated by PT Badak NGL Company, 55 percent owned by PT Pertamina, 20 percent by Vico (a BP-Eni joint venture), 10 percent by Total, and 15 percent by the Japan Indonesia LNG Company (JILCO). Recently, the Bontang plant has faced underproduction for a variety of reasons, which forced the Indonesian government to divert some natural gas supplies to domestic fertilizer companies. In 2005, Bontang LNG supply contracts were renegotiated so that more of the project’s output could supply domestic customers.

The Arun LNG facility is operated by PT Arun Natural Gas Liquefaction Company, which is 55 percent owned by PT Pertamina, 30 percent by ExxonMobil, and 15 percent by JILCO. Arun is a six-train facility with a total capacity to produce more than 10 MMt/y (487 Bcf/y) of LNG, although in 2004 production stood at 6.4 MMt (312 Bcf). ExxonMobil supplies LNG for the Arun plant from its nearby Aceh fields, although the company estimates that it has depleted 90 percent of the recoverable reserves. This shortfall also contributed to the government’s effort to redirect some natural gas production designated for export to domestic users. In 2005, this forced the Indonesian government to turn to spot LNG markets to meet its contractual obligations to foreign buyers.

Tangguh LNG Project

One project that holds promise for Indonesia's future in worldwide LNG markets is the BP-led Tangguh project in Papua province. The Tangguh fields contain 14.4 Tcf of proven natural gas reserves found onshore and offshore the Wiriagar and Berau blocks. The project received final approval from the government of Indonesia in March 2005, and is led by its operator BP (37.16 percent stake) and a consortium including the China National Offshore Oil Corporation (CNOOC, 16.96 percent), Mitsubishi (16.3 percent), Nippon Oil (12.23 percent), KG (10 percent), and LNG Japan (7.35 percent). The first LNG train is set to begin production in 2007, with the second due for completion by 2009. The project will initially supply 4.2 MMt/y (205 Bcf/y) of LNG, eventually reaching 8.4 MMt/y (410 Bcf/y) when both trains are producing. According to BP, the Tangguh LNG facility has already secured four long-term LNG sales contracts, including: the Fujian LNG project in China, K-Power in Korea, POSCO in Korea, and Sempra Energy in Mexico.

Indonesia’s two largest oil fields are Minas and Duri, which are operated by Chevron and located along the eastern coast in Sumatra. However, the Minas and Duri fields are mature and production at these locations has been on the decline. Various oil exploration projects are underway in Indonesia. However, to date, these projects have not brought sufficient new oil resources onstream to offset the declining production levels at older fields.

One of Indonesia’s last undeveloped oil fields is the Cepu block, located in East and Central Java. ExxonMobil’s local subsidiary discovered 250 million barrels of proven oil reserves in the Cepu Contract Area in 2001, and today the company estimates the area could hold up to 600 million barrels of recoverable oil reserves. ExxonMobil hesitated to develop the promising oil resource, however, because the company’s contract for the area was set to expire in 2010. After several years of negotiations, in March 2006 ExxonMobil and PT Pertamina signed a joint operation agreement (JOA) for the Cepu field. Each company will have a 45 percent stake in the project, with the remaining 10 percent held by provincial governments in East and Central Java. The project is scheduled to begin production in 2008, with peak production expected to reach 180,000 bbl/d.

BP Migas and the Indonesian government have introduced policies aimed at increasing investment in the country’s upstream sector. BP Migas set up various incentive programs for firms to develop marginal oil resources throughout the country that would not otherwise be attractive to international companies. In October 2006, the government waived import taxes on capital goods for oil and natural gas exploration and production. BP Migas has also held several competitive bidding rounds for new upstream projects throughout Indonesia. During 2006, BP Migas concluded its fifth round of acreage offerings in which it awarded dozens of new exploration and production licenses to companies. During the fifth bidding round, a handful of exploration blocks were awarded to international oil majors, such as ExxonMobil and ConocoPhillips, although the majority of tenders were won by smaller Indonesian firms.

Downstream/Refining

According to OGJ, as of January 2007, Indonesia had 992,745 bbl/d of refining capacity at 8 facilities, all of which are operated by PT Pertamina. The largest refineries are the 348,000-bbl/d Cilicap facility in Central Java, the 241,000-bbl/d Balikpapan plant in Kalimantan, and the 125,000-bbl/d Balongan refinery in West Java. PT Pertamina announced in August 2006 that it plans to spend $10 to $11 billion on boosting Indonesia’s downstream sector over the next 5 years. As part of this effort, there have been various proposals to upgrade existing refineries or build new facilities, as well as to expand the country’s transmission, distribution, and marketing network. However, of the numerous proposals that have been offered, the only project that has moved forward significantly is the planned refinery at Pare-Pare. Local firm PT Intanjaya Agromegah Abadi, with financial backing from Saudi investors and U.S.-based Inter Global Technologies, began construction on the facility in February 2006, which is slated to be Indonesia’s first privately-owned refinery. The facility will have a nameplate capacity of 300,000 bbl/d and is expected to be completed in 2010.

Various other refinery projects have also been proposed. In December 2006, PT Pertamina and China’s Sinopec completed a feasibility study of a proposed 200,000-bbl/d refinery in Tuban, East Java. While a Memorandum of Understanding (MOU) was reached between the two companies in 2005, there are no firm plans to begin construction on the proposed project. PT Elnusa, a subsidiary of PT Pertamina, has studied the possibility of building a 300,000-bbl/d refinery in a consortium with Venezuela’s Petroleos de Venezuela SA (PdVSA), Iran’s National Iranian Oil Refinery and Distribution Company (NIORDC), and Japanese investors.

Coal

Indonesia’s coal production has increased in recent years, and today the country is one of the world’s chief coal exporters. According to EIA estimates, Indonesia has 5.5 billion short tons of recoverable coal reserves, of which 85 percent is lignite and sub-bituminous. Roughly two-thirds of the country’s coal reserves are located in Sumatra, with the balance located in Kalimantan, West Java, and Sulawesi. In 2004, Indonesia produced 142 million short tons (MMst) of coal, up about 68 percent since 2000. Coal consumption has remained relatively flat in Indonesia, with 2004 consumption at 24 MMst. According to EIA statistics, Indonesia was the second largest net exporter of coal in the world in 2004, with 118 MMst of apparent net exports.

Indonesia adopted a new National Coal Policy in January 2004, which seeks to promote the development of the country’s coal resources to meet domestic requirements and to increase coal exports in the long-run.

However, a report from the U.S. Embassy in Jakarta suggests that the growth in coal production in Indonesia has been export-oriented, owing to the higher international price fetched by coal producers. Therefore, Indonesian coal exports may be vulnerable to outside market factors. Domestic coal demand has remained rather flat, despite government efforts to substitute relatively cheaper coal for oil or natural gas.

Electricity

Indonesia’s power sector faces shortages on electricity due to underinvestment in new generating capacity. In 2004, Indonesia had 25 gigawatts (GW) of installed electricity generating capacity. During 2004, Indonesia generated 112.6 billion kilowatthours (Bkwh) of electricity, of which 86 percent came from conventional thermal sources (oil, natural gas, and coal), 8 percent from hydroelectric sources, and 5 percent from geothermal and other renewable sources. In 2004, Indonesia consumed 104.7 Bkwh of electric power, showing net electricity exports during the year.

Sector Organization

Indonesia’s power generation sector is dominated by the state-owned electric utility PT PLN (Persero), formerly known as Perusahaan Listrik Negara. PT PLN operates 45 power plants, or roughly two-thirds of the country’s generating capacity. Indonesia’s electricity sector faces severe underinvestment, and the country’s energy officials have set out on a program to expand generation capacity. The plan, known as the “10,000 MW Acceleration Program”, aims to add 10,000 MW of new capacity by 2010.

In September 2002, the government passed new legislation aimed at strengthening regulatory guidance in the power sector and promoting new investment in power projects.

According to the 2002 Electricity Law, certain markets for power generation will be open for competition from 2007. Retail market competition is scheduled for 2008, when power producers will be able to sell directly to their customers rather than through PT PLN. The 2002 legislation also established a new regulatory body, the Power Market Supervisory Agency, and created incentives for rural electrification programs. However, little progress has been made on these proposals, mostly because foreign and private companies have shown little interest in investing in Indonesia’s electricity sector. Some of the previously-cancelled IPP projects have been revived, but many of them remain in a stalemate over payment disputes.

One of the major obstacles to increasing Indonesia’s power generating capacity is pricing. The government sets the price at which PT PLN sells electricity in the country, and since the Asian Financial Crisis, it has often had to sell electricity at less than the cost of production. PT PLN’s financial difficulties, coupled with its inability to increase power prices, have prevented the company from investing in new infrastructure projects to build up capacity.

Conventional Thermal

The Indonesian government has stated that it would like to promote natural gas-fired and coal-fired power stations so that the country can utilize its domestic resource base and shift away from oil-fired power generation. PT PLN has prepared numerous proposals for new power plant projects, which it will offer to investors as part of its 10,000 MW Acceleration Program. However, foreign investors have largely avoided the Indonesian power sector in recent years due to the poor financial condition of PT PLN and the uncertain regulatory climate in the electricity sector.

Hydroelectric

In 2004, Indonesia generated 9.4 Bkwh of electricity from hydroelectric sources, representing about 8 percent of the country’s total generation. Industry reports suggest that Indonesia holds vast hydropower potential, but that the country has yet to embark on the same sorts of large hydroelectric facilities as seen elsewhere in the region. Since hydropower plants require huge upfront capital investments, it is unlikely that PT PLN or other companies in Indonesia will have the incentive to invest in hydroelectric projects in the near term.

Geothermal and Other Renewables

According to EIA data, Indonesia generated 6 Bkwh of electricity from geothermal and other renewable sources in 2004, making up about 5 percent of the country’s total electricity supply. According to outside sources, Indonesia today has more than 800 MW of geothermal capacity, making it the fourth largest producer of geothermal power in the world behind the U.S., Philippines, and Mexico. The Indonesian government estimates that the country holds large untapped geothermal resources, with the potential to supply up to 21 GW of additional generating capacity. However, several plans for large-scale geothermal development projects were scrapped when Indonesia faced economic turmoil during the Asian Financial Crisis.

Environment

Indonesia's per capita carbon dioxide emissions remain relatively low, but the large size of the country (it has the fourth largest population in the world) makes it a considerable emitter of carbon dioxide in the region. Indonesia recently completed its phase-out of leaded gasoline, with a complete ban having come into force in 2005.

Profile
Country Overview
Location Southeastern Asia, archipelago between the Indian Ocean and the Pacific Ocean
Independence 17 August 1945 (independence proclaimed); 27 December 1949 (Netherlands recognizes Indonesian independence)
Population (2006E) 245,452,739

Economic Overview
Currency/Exchange Rate (22 December 2006) 1 USD = 9,079.77 Indonesian Rupiahs (IDR)
Inflation Rate (2005E) 10.5%
Gross Domestic Product (GDP, 2005E) $281.1 billion
Real GDP Growth Rate (2005E) 5.6%
Unemployment Rate (2005E) 11.8%
External Debt (2005E) $135 billion
Exports (2005E) $86.2 billion
Exports - Commodities oil and gas, electrical appliances, plywood, textiles, rubber
Exports - Partners (2005E) Japan 21.1%, US 11.5%, Singapore 9.2%, South Korea 8.3%, China 7.8%, Malaysia 4%
Imports (2005E) $63.9 billion
Imports - Commodities machinery and equipment, chemicals, fuels, foodstuffs
Imports - Partners (2005E) Singapore 16.4%, Japan 12%, China 10.1%, US 6.7%, Thailand 6%, South Korea 5%, Saudi Arabia 4.7%, Australia 4.4%
Current Account Balance (2005E) $0.9 billion

Energy Overview
Proven Oil Reserves (January 1, 2006E) 4.3 billion barrels
Oil Production (2006E) 1,105 thousand barrels per day, of which 81% was crude oil.
Oil Consumption (2006E) 1,150 thousand barrels per day
Crude Oil Distillation Capacity (2006E) 992,700 barrels per day
Proven Natural Gas Reserves (January 1, 2006E) 97.8 trillion cubic feet
Natural Gas Production (2004E) 2.7 trillion cubic feet
Natural Gas Consumption (2004E) 1.3 trillion cubic feet
Recoverable Coal Reserves (2003E) 5,476.3 million short tons
Coal Production (2004E) 142.3 million short tons
Coal Consumption (2004E) 23.9 million short tons
Electricity Installed Capacity (2004E) 25 gigawatts
Electricity Production (2004E) 112.6 billion kilowatt hours
Electricity Consumption (2004E) 104.7 billion kilowatt hours
Total Energy Consumption (2004E) 4.7 quadrillion Btus*, of which Oil (53%), Natural Gas (30%), Coal (12%), Other Renewables (3%), Hydroelectricity (2%), Nuclear (0%)
Total Per Capita Energy Consumption ((Million Btu)E) 19.7 million Btus
Energy Intensity (2004E) 5,377.4 Btu per $2000-PPP**

Environmental Overview
Energy-Related Carbon Dioxide Emissions (2004E) 307.7 million metric tons, of which Oil (56%), Natural Gas (24%), Coal (16%)
Per-Capita, Energy-Related Carbon Dioxide Emissions ((Metric Tons of Carbon Dioxide)E) 1.3 metric tons
Carbon Dioxide Intensity (2004E) 0.4 Metric tons per thousand $2000-PPP**
Environmental Issues deforestation; water pollution from industrial wastes, sewage; air pollution in urban areas; smoke and haze from forest fires
Major Environmental Agreements party to: Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands signed, but not ratified: Marine Life Conservation

Oil and Gas Industry
Organization Mixed. State-owned PT Pertamina maintains an important role in the oil and gas sectors, while production is dominated by international oil majors.
Foreign Company Involvement BP, Chevron, CNOOC, ConocoPhillips, ExxonMobil, Inpex, KG, Mitsubishi, Nippon Oil, PetroChina, Petronas, Total, Vico
Major Oil Fields Duri, Minas, Belida, Ardjuna, Arun, KG/KRA, Widuri, Nilam, Attaka
Major Natural Gas Fields Sumatra: Arun, Alur Siwah, Kuala Langsa, Musi, South Lho Sukon, Wampu. East Kalimantan: Attaka, Badak, Bekapai, Handil, Mutiara, Nilam, Semberah, Tunu. Natuna Sea: Natuna. Java: Pagerungan, Terang/Sirasun. Irian Jaya: Tangguh
Major Refineries (capacity, bbl/d) Cilicap, Central Java (348,000); Balikpapan, Kalimantan (240,920); Balongan (125,000); Dumai, Central Sumatra (114,000); Musi, South Sumatra (109,155).

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP figures from OECD estimates based on purchasing power parity (PPP) exchange rates.

Source: EIA

BioPertamax dan Biosolar Mulai Dipasarkan di Bali

[ ESDM.go.id ]

Untuk pertama kali produk BioPertamax dan Biosolar mulai dipasarkan di luar Jawa. Lokasi yang dipilih adalah Bali. Peluncuran produk BBM PT Pertamina ini dilakukan langsung oleh Presiden Susilo Bambang Yudhoyono, hari Selasa (13/11).

Acara peluncuran dilakukan di lokasi SPBU No. 54.805.11, Jl. By Pass Ida Bagus Mantra, desa Ketewel, Gianyar. Hadir pada peluncuran tersebut antara lain Menteri ESDM Purnomo Yusgiantoro, Menteri Negara BUMN Sofyan Djalil dan Direktur Utama PT Pertamina Ari H Soemarno.

Menurut Menteri ESDM Purnomo Yusgiantoro peluncuran Bio Pertamax dan Biosolar ini memang dalam rangka menyambut Bali sebagai tuan rumah Konferensi Puncak Perubahan Iklim Perserikatan Bangsa-Bangsa COP 13, awal bulan Desember 2007. Dijadwalkan acara akan diikuti oleh delegasi dari 180 negara.

''Inilah kesempatan Indonesia untuk menunjukkan keseriusannya kepada dunia dalam menyediakan dan menggunakan bahan bakar ramah lingkungan,'' ujar Menteri ESDM Purnomo Yusgiantoro. Selain itu juga diungkapkan bahwa langkah ini juga merupakan bagian dari program nasional untuk mempercepat penggunaan bahan nabati.

New company offers promise of biofuel boom

[ theage.com.au ]

A NEW Australian company hopes to tap global demand for biofuels with a $10 million initial public offering this week.

Jatoil's main commodity will be Jatropha oil — derived from a low-cost, high-yielding, fast-growing, plant of the same name it plans to grow and sell overseas.

It will develop its supplies with partners initially in Asia to supply Asia and Europe.

Jatoil will offer up to 35 million shares at 20¢ each to raise up $7 million and may accept oversubscriptions for up to 15 million shares at 20¢ each to raise a further $3 million. The maximum raising of up to $10 million comes in addition to its cash reserves of $5 million.

"We have already entered an agreement to participate in substantial Jatropha projects in Indonesia and we are initially exploring additional opportunities in Sri Lanka and South-East Asia," executive chairman Mike Taverner said.

The offer opens on Friday and closes at the end of the month. It is due to list on the sharemarket on December 12.

■ Mesbon China Nylon hopes Australian investors will weave themselves into its expansion plans through a $20 million public offering. The Chinese yarn-spinning company will issue up to 40 million fully-paid ordinary shares at 50¢ each to raise up to $20 million.

Executive chairman Zhehao Shen said the timing was right "particularly so if local investors can trade China-focused stock on the local Australian bourse".

Auspine chairman Paul Teisseire has been appointed a Mesbon non-executive director.

The offer opens on November 19 and is due to close on December 7. It is due to list on December 18. AAP

Indonesian fuel subsidy soars amid oil price rise

[ ChinaView ]

JAKARTA, Nov. 5 (Xinhua) -- The fuel subsidy in the Indonesian state budget is estimated to hit 90 trillion rupiah this year (about 9.8 billion U.S. dollars) against the initial projection of 55 trillion (6 billion dollars) due to soaring oil prices, an official said Monday.

Indonesia must cope with the global oil shocks by either increasing domestic fuel prices or launching energy conservation campaign.

"But the government would not go to the first option (price hike) because of its potential massive social effects, so we choose the second option," Minister of Energy and Mineral resources Purnomo Yusgiantoro said in a seminar on renewable energy development here.

Purnomo said the average Indonesian crude oil price already hit72 dollars per barrel, far above the projected 60 dollars per barrel in the state budget.

The government allocates subsidies for transport fuel products but allows market pricing for high-octane fuel products, fuel for industrial uses and for export sales.

The subsidized gasoline, for instance, sells at a mere 4,500 rupiah (49 cents) a liter.

Subsidized fuel consumption in Southeast Asia's only OPEC member is predicted to reach 38.2 million kiloliters this year, exceeding the government's quota of 36.1 million kiloliters.

In nine months to September, fuel consumption already reached 28.5 million kiloliters, comprising gasoline 13.09 million kiloliters, diesel fuel 8.01 million kiloliters and kerosene 7.4 million kiloliters, according to data from the Oil and Gas Executive Body (BP Migas).

Rare wildlife in Sumatran forest to be cleared

[Telegraph]

By Charles Clover, Environment Editor

Last Updated: 12:01am GMT 31/10/2007

Some of Asia's rarest and most endangered species including tigers, elephants, sun bears and clouded leopards have been found by scientists in Sumatran forests currently being allocated by the Indonesian government for oil palm plantations.

In pictures: Images captured during the study The survey of a logged, unprotected and partly inhabited forest adjacent to a national park found evidence of tigers throughout the area, groups of elephants with calves in half the area and many records of other species such as tapirs and golden cats. A family of elephants (top) and one of the tigers caught by the camera traps The animals were found by scientists from the Zoological Society of London using camera traps to assess the wildlife interest of "production forest" that the Indonesian government is in the process of allocating for oil palm or timber plantations. Demand from the west for cooking oils and biofuels has created huge demand for oil palm and local developers have been lobbying for land to develop plantations. Adnun Salampessy, on of the Society's field researchers, said: "We were astonished when we saw the images from the camera traps, which included an entire elephant family and at least five different tigers, identifiable by their stripes. "Although we always believed these areas were important, it is incredibly encouraging to have actual, incontrovertible proof of the animals' presence. We hope that this evidence will help persuade the government that such areas are highly important for conservation." The survey covered nearly 2000 square kilometres of degraded, logged and partially settled forest adjacent to Bukit Tiga Puluh National Park in central Sumatra, which has recently been allocated for clearance. The surveys were led by the Society, with survey teams including members of the Frankfurt Zoological Society wildlife protection teams and Indonesian forestry department staff from Bukit 30 National Park. The Society is now calling for the land allocation policy to be changed to recognise the value of forest that has been logged – and which would recover to near-primary forest if it were left alone – at a time when the eyes of the world are on finding ways of paying countries such as Indonesia to keep forest standing. Sarah Christie, carnivore programme manager at the Society said: "This work shows that the criteria for developing land in Sumatra need to be urgently reassessed. Just because forests have been logged does not mean they have lost their value for biodiversity. "Many of these areas are playing a vital role in supporting the last remaining Sumatran tigers. Before any land is allocated for conversion it is vital that thorough assessments are made of the remaining value to wildlife so that important areas can be avoided whilst areas that have to be developed can be done so sustainably." Indonesia, one of the most biodiverse regions in the world, lost over a third of its forest between 1985 and 1997 and was recently named as the third largest carbon-emitter in the world. While the government is taking steps to prevent further loss of primary forest, development of "degraded" or secondary forest by industry is being actively encouraged. Under a proposal being brokered at the talks on a new climate change treaty to replace the Kyoto protocol, due to take place in Bali, Indonesia, in December, rainforest countries could be paid to leave existing forest standing as "carbon sinks." This would applied to degraded forest as well as primary forest. However, international agreements are slow and may not come into force for several years. The Society says that for the wildlife in the area of forest it surveyed the agreement will come too late as a company has been allocated the land. However, in a sign of agreements that could result from the deal this December, the Royal Society for the Protection of Birds recently bought a 200,000 acre logging concession in Sumatra which had many of the species found in the ZSL survey – then said it would not log it. The law had to be changed to make this possible.

Emil Salim: Energi Biofuel Seharusnya Prioritas Terendah

[ Republika ]

Jakarta-RoL-- Pakar lingkungan hidup, Emil Salim mengatakan, energi biofuel yang kerap digembar-gemborkan pemerintah seharusnya menjadi prioritas terendah setelah seluruh alternatif sumber energi lainnya diberdayakan.

"Biofuel harusnya diletakkan sebagai prioritas yang paling rendah setelah kita kembangkan sumber-sumber energi lain seperti panas matahari, angin, dan sungai," katanya dalam diskusi tentang "Global Warming" yang diselenggarakan Universitas Paramadina di Jakarta, Jumat.

Emil Salim yang juga menjabat sebagai anggota Dewan Pertimbangan Presiden Wantimpres) itu menuturkan, energi biofuel berasal dari "palm oil" atau pohon kelapa sawit sehingga membutuhkan banyak lahan untuk menanam tanaman tersebut.

Hal itu, lanjut Guru Besar Ekonomi Studi Pembangunan Universitas Indonesia itu, tentu saja terasa kontradiktif dengan Indonesia yang merupakan negara kepulauan yang luas lahannya relatif lebih sedikit dibandingkan luas lautannya.

"Tanah di Indonesia seharusnya 'diselamatkan' terlebih dahulu untuk mencukupi bahan pangan," kata mantan Menteri Negara Kependudukan dan Lingkungan Hidup itu. Selain itu, Emil merasa kecewa karena tidak sedikit pohon kelapa sawit di tanah air yang ternyata tidak ditanam di tanah yang terdegradasi tetapi pada daerah hutan.

Sementara itu, pembicara lainnya yaitu Juru Kampanye Iklim dan Energi Asia Tenggara untuk Greenpeace, Nur Hidayati mengemukakan bahwa merupakan hal yang ironis untuk mengedepankan pemakaian biofuel karena kebutuhan untuk energi terbarukan seperti biofuel itu juga mempercepat laju kerusakan hutan di tanah air.

"Permintaan minyak kelapa sawit yang lebih banyak dari negara maju seperti negara di benua Eropa untuk memperoleh energi biofuel akan mempercepat laju deforestasi (kerusakan hutan-red)," kata Nur Hidayati. Laju deforestasi akan bertambah, ujar dia, karena pembukaan lahan untuk tanaman kelapa sawit di lahan gambut seperti yang terjadi di Provinsi Riau dan Pulau Kalimantan membutuhkan pembersihan secara total yang dilakukan dengan cara dibakar.

Sedangkan Direktur Eksekutif Wahana Lingkungan Hidup Indonesia (Walhi), Chalid Muhammad menyerukan kepada pemerintah agar mencabut izin pengelolaan dari perusahaan yang memiliki daerah lahan atau hutan yang terbakar. "Ini karena hanya ada dua kemungkinan, yaitu lahan atau hutan tersebut sengaja dibakar atau perusahaan tersebut lalai dalam mengontrol kebakaran," kata Chalid. antara/mim

Conservatives demand strict sustainability rules for biofuels

[ Conservatives.com ]

In a debate in parliament this afternoon, the government is seeking to establish the first fixed targets for biofuels. The Conservatives have been calling for greater use biofuels for several years but are deeply concerned that the measure being put forward by the government today allows targets to be met using biofuels which do not come from sustainable sources.
In reply to the government proposals Julian Brazier, Shadow Minister for Transport (aviation and shipping) will say:
(check against delivery)

"Having listened to the concerns expressed to us by many of our constituents and by organisations such as Greenpeace, Friends of the Earth and aid charities, and in the light of increasing scientific evidence of the problems biofuels can cause if they are produced in a way which is environmentally insensitive, we believe that the measure being put forward by the government today is deeply disappointing.

"If biofuels are to play a successful part in the fight against climate change, it is absolutely vital that they come from sustainable sources. Without clear and binding rules on sustainability, this proposal could damage the environment not protect it. It would be madness if UK biofuel targets actively encouraged people to rip up the rainforest. According to Friends of the Earth, unsustainable biofuels have already contributed to 87% of the deforestation of Malaysia; indeed the destruction of 98% of rainforests there and in Indonesia and the further widespread damage in Brazil are all predicted."

"Serious concerns also need to be addressed regarding the impact of large scale biofuel production on food prices. Most recently the UN special rapporteur on the right to food, Jean Ziegler earlier this month described current approaches to biofuels as: "… a total disaster for those who are starving."

"We support sustainable biofuels and believe that the government should take its proposals away and bring them back in a form which has effective safeguards against the environmental and biodiversity damage that expert evidence now tells us that some types of biofuel production can cause."

Conservatives believe that this statutory instrument, by deferring sustainability criteria until at least 2011, represents a massive missed opportunity to benefit the environment.

Cargill to turn Indonesian feedlot waste to energy

[ Reuters ]

CHICAGO, Oct 23 (Reuters) - U.S. agribusiness company Cargill Inc [CARG.UL] said on Tuesday it began constructing a facility on an Indonesian cattle feedlot to convert animal waste into energy.

The anaerobic digester, scheduled to begin operating by February 2008, on PT Santosa Agrido's Lampung Bekri 23,000-cattle feedlot operation in Lampung/Sumatera, Indonesia, will convert cattle manure into 900 tonnes of methane gas per year that will be used to generate energy for the feedlot.

"Cargill has taken the responsibility to develop, fund and implement the project, including managing of all permitting and registration issues. That allows us to concentrate on what we're here for, which is to reinforce our position as the largest cattle feed lot business in the region," Samuel Wibisono, PT Santosa Agrindo's president director of its beef division, said in a statement.

The project is designed to reduce the greenhouse gas equivalent of 188,000 tonnes of carbon dioxide emitted into the atmosphere over 10 years. A byproduct of the process will be an organic corn fertilizer.

The technology, managed and funded by Cargill's Environmental Finance group, will generate carbon credits that can be traded on global climate exchanges.

Minneapolis-based Cargill, the second-largest privately held U.S. company, is a global provider of food, agricultural and trading services.

Skeptical Indonesians turn their backs on liquid petroleum gas

[ Herald Tribune ]

By Leony Aurora Bloomberg News

Published: October 22, 2007

JAKARTA: Siti Chairoh earns her living selling liquid petroleum gas. But she will not cook with the fuel.

"I'm afraid to use it," said Chairoh, who runs her business from the home she shares with her son, his wife and two grandchildren in Jakarta. "I don't care if people say I'm old-fashioned. I'm too scared the cylinder will blow up."

Fear is hindering Indonesia's drive to persuade poor people to use liquid petroleum gas, or LPG, instead of kerosene, a switch that would save them money and cut government fuel subsidies by 23 trillion rupiah, or $2.5 billion - almost half the Indonesian education budget next year.

After six months of marketing and education campaigns in Jakarta, the plan has stalled because of the inability of the state energy company PT Pertamina to persuade people that LPG is safe. Protests erupted in Jakarta, the capital, in August, when kerosene supplies ran short after Pertamina cut deliveries because of an expected drop in demand. The government plans to convert the entire nation to LPG by 2011.

"The idea is brilliant," said Fauzi Ichsan, chief economist at the Indonesian unit of Standard Chartered. "Implementation is the problem."

Money is also an issue, even though Pertamina is providing free stoves and three-kilogram, or seven-pound, LPG canisters to every household.

In a country where half of the 235 million people survive on less than $2 a day, consumers need as little as 1,500 rupiah to buy a half-liter of kerosene, enough for the typical family to cook a single meal. It costs about 13,000 rupiah for a canister of liquid petroleum gas, which lasts a family about a week.

"There will be cash-flow problems," said Ibnu Bramono, senior consultant in Singapore at Facts Global Energy, a consulting firm. "It was even difficult in Jakarta. In remote areas it will be worse."

In the long run, households switching to LPG will save at least 24,000 rupiah a month, Pertamina estimates.

While Indonesia subsidizes all fuel for nonindustrial use, the switch will save money for the government because subsidies for LPG are lower than those for kerosene. State aid reduces the price of LPG by 53 percent, compared with 68 percent for kerosene, according to Pertamina. In 1998, demonstrations against fuel price increases helped topple the 32-year dictatorship of President Suharto.

Indonesia, a member of the Organization of Petroleum Exporting Countries, is the world's biggest exporter of liquefied natural gas, though it is a net importer of oil products like kerosene.

Educating new liquid petroleum gas users is not easy, said Marwan, an LPG retailer who uses just one name. While conducting demonstrations at his kiosk in south Jakarta, Marwan places LPG cylinders in buckets of water to prove they do not leak. Even so, many customers return asking for kerosene, frightened because they cannot replicate some aspect of the lessons, he said.

The transition might have been smoother if the government had been more involved, said Huzna Zahir of the Indonesian Consumers Association.

The ministries of energy, women's affairs and small business could have helped educate consumers, Zahir said. Those ministries and Pertamina should place advisers in communities until people adjust to the new fuel. "That way people will have someone to turn to when they have questions," she said.

Pertamina was chosen to implement the switch because it successfully ran a pilot program in 2006 and maintained a distribution network of agents and retailers, said Energy Minister Purnomo Yusgiantoro. The company will continue to lead the effort, although government ministries will now help, he said.

Chairoh, the LPG retailer, is not budging. A former kerosene seller, she keeps gas stoves out of her kitchen and stores about 100 LPG canisters in a shed away from her brick house.

Oilex drilling at Indonesian West Kampar indicates potential oil zones

[ AFX News Limited ]

10.23.07, 4:10 AM ET

LONDON (Thomson Financial) - Oilex Ltd said drilling at Indonesia's West Kampar Pendalian-3 well has indicated potential oil zones at depths similar to the nearby Pendalian-1 well.

The company said once the logging program is complete, the well will be cased and a comprehensive 14 day multi-zone testing program will be undertaken.

Oilex has a 45 pct participating interest in the West Kampar production sharing contract, while Sumatera Persada Energy holds the remaining 55 pct stake.

TFN.newsdesk@thomson.com

RI may earn $6b in revenue from Senoro LNG plant

[ The Jakarta Post ]
Ika Krismantari, Jakarta

The government is projected to earn up to US$6 billion in revenue under a 15-year production split scheme for the LNG plant in Senoro, Central Sulawesi, a source close to the deal says.

The revenue is based on a production split arrangement, under which the government will gain 85 percent, while the Senoro block operators -- state oil and gas firm PT Pertamina and Medco Exploration and Production (E&P) -- will gain 15 percent, Medco E&P president director Lukman Mahfoedz said Tuesday.

The plant uses a complicated downstream business structure, under which the gas producers -- Pertamina and Medco -- will sell the gas to LNG plant owners Pertamina, Medco and Japanese firm Mitsubishi, who will then sell the liquefied gas to third parties.

The LNG plant is 51 percent owned by Mitsubishi, 29 percent by Pertamina and 20 percent by Medco.

Lukman said construction of the LNG plant, designed to produce a total capacity of two million tons per annum, could begin in the first quarter next year.

Construction costs are estimated at around $1 billion, with the plant expected to start production in the second quarter of 2011.

It was earlier reported that gas from the LNG plant would be exported to Japan despite increasing domestic demand, according to Pertamina vice president director Iin Arifin Takhyan.

The fact that a Japanese company, Mitsubishi, is involved in the Senoro LNG project as a majority shareholder supports the idea LNG from the plant would be shipped there, Iin said.

Japan, one of the country's biggest gas buyers, is hoping Indonesia will continue to supply LNG.

Japan reportedly demanded the continuity of Indonesia's gas exports in the economic partnership agreement (EPA) recently signed between the two countries.

However, Indonesia will only be able to commit an export total of three million tons per year after the current contracts end in 2010.

Under existing contracts, Indonesia supplies 12 million tons of LNG a year to Japan.

Indonesia betting on biofuel crops as its regal forests dwindle

[Taipei Times]

By Samantha Brown
AFP, JAKARTA
Saturday, Sep 15, 2007, Page 9

Southeast Asian nations are gearing up for a palm oil boom as interest in biofuels soars, but activists warn the crop may not satisfy a global thirst for green, clean energy and would require chopping further into forests.

They caution that oil palm plantations require massive swathes of land -- either what's left of the region's disappearing forests, denuded plots that would be better off reforested, or land critical to supporting local people.

Governments and companies have been scrambling to cash in since palm oil prices jumped last year amid spiking demand from China, India and Europe, where biofuels should comprise 10 percent of motor fuels by 2020.

Indonesia has launched a particularly ambitious biofuels expansion program, which aims to source 17 percent of its energy needs from renewable sources by 2025.

Evita Herawati, an assistant to Indonesia's minister of energy, said 5.5 million hectares will be set aside for biofuel plantations by 2010, 1.5 million hectares of which are for oil palm.

The main objective is "to create jobs and alleviate poverty," with some 3.5 million new jobs being eyed by 2010.

"A lot of forest has been cut down but they didn't use it at all. We would like to use it for this program," she said, adding that so far 58 deals worth a total of US$12.4 billion have been signed with companies.

She estimated that just in Kalimantan, the Indonesian portion of Borneo island, about 5.5 million hectares are available for use -- an area far larger than Denmark and a bit smaller than Sri Lanka. Nine million additional hectares are available elsewhere, Herawati said.

The issue of where the land will come from worries activists, who point out that much of Indonesia's peatland forests have already been destroyed, releasing huge amounts of carbon dioxide.

Rully Syumanda, of Indonesia's environmental watchdog Walhi, said proposing palm oil plantations has been used in recent years in Indonesia "as a pretext to clear land and take the more valuable logs."

He estimates that nearly 17 million hectares of Indonesia's forests have been cleared ostensibly for oil palm plantations since the 1960s, but only 6 million hectares have been cultivated.

Though he concedes that the government is now making efforts to reforest, catch offenders and audit the industry, Syumanda said these were "insignificant compared to the damage that is being inflicted on the environment."

Rudi Lumuru, from Sawit Watch, an industry monitor, meanwhile said much of this "empty" land is actually used by local people.

He reckons more than 500 communities have been embroiled in conflicts with more than 100 palm oil companies, typically from Malaysia.

"This land has been used since a long time ago by the people. They live on the land, they grow on the land," he said. "The government says people can make money, but it's about transition of culture. The culture of the farmers, it's rice, coffee, cocoa -- it's not palm oil."

While compensation payments may be meted out, they end up meager thanks to endemic corruption, he said.

The Indonesian industry says it is cleaning up its act.

"The industry now is trying to avoid destroying land," said Derom Bangun, executive chairman of the Indonesian Palm Oil Association. "Companies no longer clear land by burning or in ways that harm the environment or wildlife."

Indonesian companies have joined the Roundtable on Sustainable Palm Oil (RSPO), a WWF-led initiative to engage palm oil companies, and is trying to abide by their principles, he said.

Technology minister Agusman Effendi said that economic factors as well as "sustainability of the environment and the way the government can give extra support to the poor" needed to be considered.

"The `what' has been defined clearly, but the `how to' is the thing that has been criticized by the public," he said.

Companies in Malaysia, the world's largest palm oil producer -- expected to be eclipsed by Indonesia this year -- are being lured here by the vast expanses of already-cleared land.

Malaysian plantations minister Peter Chin insists palm oil production does not damage the environment and said Malaysian companies will boost productivity by replanting with higher yielding clones and adopting good agronomic practice.

"We are committed to ensuring that whatever we do now is not at the expense of the environment and our future generations," he said.

According to the Malaysian Palm Oil Board, 65 percent of Malaysia's total land area of almost 33 million hectares is comprised of forest. Palm oil plantations use 12 percent.

Alvin Tai, plantation analyst at OSK Securities, said most of the companies listed on the Malaysian bourse are expanding in Indonesia as landbank in Malaysia is limited.

He said most major plantation firms were RSPO members and "they have the resources to maintain those standards. It's the smaller plantation owners that are a concern".

Meena Rahman from Friends of the Earth Malaysia disputes the government's claims and says that the group is particularly worried about projects in Sarawak, located on the Malaysian side of Borneo island.

She says there is evidence that 1.5 million hectares of land that was to be set aside for protection and water catchment purposes has been planted with oil palm as well as pulp and wood trees.

"Maybe what Peter Chin is saying is that they are planting palm oil in areas that have already been logged -- but they should allow reforestation to take place instead of allowing palm oil expansion," she said.

Malaysia's northern neighbor Thailand is also getting in on the game.

High prices for palm oil, driven by Bangkok's search for alternative fuels, have driven more and more farmers to convert rubber and fruit plantations to grow oil palm, an official from Thailand's agriculture ministry said.

Local prices of palm oil have almost doubled to more than 4 baht (US$0.07) per kilogram from 2 baht last year.

Last year Thailand had some 32,000 hectares planted with oil palm, but the area is expected to jump to 81,000 by year end. An additional 400,000 hectares of unused farmland in the south could also be used, the official said.

The government has provided soft loans to help farmers make the switch, and is considering a floor price for the crop, she said, adding that "we don't have environmental issues" linked to palm oil, like Thailand and Malaysia.

The Philippines meanwhile has about 25,000 hectares under cultivation, but some 454,000 hectares of "disposable land" -- pasture or shrubbery -- mostly in the south, has been earmarked as well, the agriculture department said.

But so far, only one Singapore-based company has come sniffing, seeking at least 25,000 hectares of land. This story has been viewed 885 times.

Green fuel gets a black name

[ The Sydney Morning Herald ]

The race for clean energy may be doing more harm than good, writes Marian Wilkinson.

It is a sickening picture. A photograph of six soft-eyed baby orang-utans stamped with the words "Orphaned by Palm Oil companies". The image, along with scores of others showing adult apes staring out through the bars of cages, has created a public relations disaster for global companies buying the oil that many hoped would fuel a green energy boom.

This week, as Greenpeace International launched a "Forest Defenders Camp" in the Indonesian province of Riau, where swathes of orang-utan habitat have been cleared by felling and fire for lucrative palm oil plantations, the "oil for ape" scandal hit Australia.

Caught in the middle is a quietly spoken Sydney businessman who walked away from the petroleum industry several years ago convinced that price, supply and climate change made it yesterday's game. Barry Murphy, a former Caltex Oil chief, plunged into the heady world of "clean" energy hoping to fuel Australian industry with diesel made from the world's second most popular edible oil.

"It would be foolish to ignore the fact that people are anxious about fossil fuel and its effect on the environment and that it's not sustainable," Murphy told the Herald last week. "People are naturally looking to palm oil." Why? "It has the highest yield of any of the vegetable oils. You can get 4000 to 5000 litres of oil per hectare per year." That is about 10 times more productive than soya beans.

Perhaps unfortunately, Murphy is not alone in his thinking. In January this year, the China National Offshore Oil company reportedly signed contracts to develop 1 million hectares of palm oil plantations in Indonesia and Papua New Guinea.

This thinking has sent palm oil stocks soaring. European countries hoping to slash their greenhouse gas emissions by using biofuels have also turned their attention to palm oil. Already a ubiquitous ingredient in supermarket products from margarine to lipstick, palm oil's promise as a clean biofuel supercharged the price which reached a staggering $US828 ($921) a metric tonne last month, a leap of more than $US300 in just one year.

But the palm oil boom is proving to be an ecological disaster in Indonesia and Malaysia, which produce more than 80 per cent of the world supply. The trade has helped drive Indonesia's spectacular rate of deforestation and the burning of its peatlands. Early this year, the United Nations released a report on the crisis, finding that the explosion in palm oil plantations "is now the primary cause of permanent rainforest loss" in Indonesia and Malaysia. As the forest disappears, local environmentalists estimate that up to 50 orang-utans are dying each week.

Palm oil furore could stymie green fuel plan

[ The Sydney Morning Herald ]

THE rush to replace carbon-emitting petroleum with "clean green" biofuels is threatening to stall in the face of rising food prices, Federal Government disincentives and growing opposition from environmental groups sounding the alarm about large-scale deforestation to support fuel crops.

Now a planned $30 million biodiesel plant in Port Botany is under attack by the Greens because it will use palm oil from Indonesia and Malaysia. Its future is up in the air as the developer, Natural Fuels Australia, decides whether it should go ahead. The chairman of the company, Barry Murphy, said yesterday that the Federal Government clean fuels grant did not in reality encourage the use of pure biodiesel from crops and therefore "makes the economics difficult". He also acknowledged the price of feedstock and the global issues around climate change and deforestation made the decision a tough one.

The Greens state MP Ian Cohen is demanding that NSW reject the planning request by Natural Fuels for the biodiesel plant, saying the minister, Frank Sartor, has failed to consider its effect on rainforest destruction because of the plant's proposed use of palm oil. Mr Cohen has written to Mr Sartor saying the plant, rather than helping climate change, "may worsen the global crisis whilst hastening the destruction of tropical forests".

A spokesman for the Planning Department said the importation of palm oil was a Federal Government matter.

This week Natural Fuels found itself at the centre of a political storm over its planned importation of palm oil for use in its plant in Darwin, which will come on line in December.

The Federal Environment Minister, Malcolm Turnbull, announced Australia would push for international action on the sustainable sourcing of palm oil at the United Nations climate talks in Bali in December.

The Federal Government provides a 38 cents a litre subsidy for biofuels, including those made from palm oil, as part of its push to encourage clean green fuel. But at the same time Mr Turnbull has pledged $200 million to stop deforestation in South-East Asia, caused partly by a huge expansion in palm oil plantations.

Earlier this year the UN reported that the drive for new palm oil plantations was one of the greatest threats to the rainforests and the endangered orang-utans in the region. "In Indonesia and Malaysia it is now the primary cause of permanent rainforest loss," the report found. Plantations in Indonesia have expanded from 600,000 hectares in 1985 to an estimated 6.4 million hectares this year, the Palm Oil Action Group says.

The devastation of rainforest and peatlands has caused some big European biofuel companies to shun palm oil as a source. But companies like Natural Fuels are anxious to create a "sustainable" source of palm oil and have joined forces with large companies such as Cadbury Schweppes and Unilever, and the environment group WWF, to form the Roundtable on Sustainable Palm Oil.

At a meeting next month in Kuala Lumpur, the group will call on growers, wholesalers and retailers to accept a code of practice curbing destructive activities, including the clearing and burning of rainforest. Mr Murphy has been heavily involved in the reforms and said the company realised "these are real issues and need to be addressed".

But several environmental groups, including Greenpeace, say the roundtable group is dependent on self-regulation and will be incapable of enforcing sustainable production.

Kyushu Elec takes Indonesia geothermal project stake

[Reuters]

TOKYO, Oct 9 (Reuters) - Kyushu Electric Power Co Inc (9508.T: Quote, Profile, Research) said on Tuesday it had acquired a 25 percent stake in a geothermal power project in Indonesia from Indonesian energy explorer PT Medco Energi International Tbk (MEDC.JK: Quote, Profile, Research) for an undisclosed sum.

Last year, Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN) awarded a contract to a consortium of Medco, Ormat Technologies (ORA.N: Quote, Profile, Research) and Itochu Corp. (8001.T: Quote, Profile, Research) to build a 330-megawatt geothermal power plant in Sarulla in North Sumatra. Medco chief executive officer Hilmi Panigoro said in May that it wanted Kyushu to join the project because of its experience in the field.

Panigoro said then that Medco had a 62.25 percent stake in the Sarulla project, Itochu 25 percent and Ormat 12.75 percent. Indonesia, the Asia-Pacific region's only OPEC member, is tapping alternative sources of energy to meet rising power demand and cut consumption of expensive crude oil as its own reserves dwindle.

How to Beat the High Cost of Gasoline. Forever!

[Fortune]

Stop dreaming about hydrogen. Ethanol is the answer to the energy dilemma. It's clean and green and runs in today's cars. And in a generation, it could replace gas.By Adam Lashinsky and Nelson D. SchwartzJanuary 24, 2006: 4:09 PM EST

(FORTUNE Magazine) - You probably don't know it, but the answer to America's gasoline addiction could be under the hood of your car. More than five million Tauruses, Explorers, Stratuses, Suburbans, and other vehicles are already equipped with engines that can run on an energy source that costs less than gasoline, produces almost none of the emissions that cause global warming, and comes from the Midwest, not the Middle East.

These lucky drivers need never pay for gasoline again--if only they could find this elusive fuel, called ethanol. Chemically, ethanol is identical to the grain alcohol you may have spiked the punch with in college. It also went into gasohol, that 1970s concoction that brings back memories of Jimmy Carter in a cardigan and outrageous subsidies from Washington. But while the chemistry is the same, the economics, technology, and politics of ethanol are profoundly different.

Instead of coming exclusively from corn or sugar cane as it has up to now, thanks to biotech breakthroughs, the fuel can be made out of everything from prairie switchgrass and wood chips to corn husks and other agricultural waste. This biomass-derived fuel is known as cellulosic ethanol. Whatever the source, burning ethanol instead of gasoline reduces carbon emissions by more than 80% while eliminating entirely the release of acid-rain-causing sulfur dioxide. Even the cautious Department of Energy predicts that ethanol could put a 30% dent in America's gasoline consumption by 2030.

We may not have to wait that long. After decades of being merely an additive to gasoline, ethanol suddenly looks to be the stuff of a fuel revolution--and a pipe dream for futurists. An unlikely alliance of venture capitalists, Wall Streeters, automakers, environmentalists, farmers, and, yes, politicians is doing more than just talk about ethanol's potential. They're putting real money into biorefineries, car engines that switch effortlessly between gasoline and biofuels, and R&D to churn out ethanol more cheaply. (By the way, the reason motorists don't know about the five-million-plus ethanol-ready cars and trucks on the road is that until now Detroit never felt the need to tell them. Automakers quietly added the flex-fuel feature to get a break from fuel-economy standards.)

What's more, powerful political lobbies in Washington that never used to concern themselves with botanical affairs are suddenly focusing on ethanol. "Energy dependence is America's economic, environmental, and security Achilles' heel," says Nathanael Greene of the Natural Resources Defense Council, a mainstream environmental group. National- security hawks agree. Says former CIA chief James Woolsey: "We've got a coalition of tree huggers, do-gooders, sodbusters, hawks, and evangelicals." (Yes, he did say "evangelicals"--some have found common ground with greens in the notion of environmental stewardship.)The next five years could see ethanol go from a mere sliver of the fuel pie to a major energy solution in a world where the cost of relying on a finite supply of oil is way too high. As that happens, says Vinod Khosla, a Silicon Valley venture capitalist who has become one of the nation's most influential ethanol advocates, "I'm absolutely convinced that without putting any more land under agriculture and without changing our food production, we can introduce enough ethanol in the U.S. to replace the majority of our petroleum use in cars and light trucks."

Filling up on ethanol isn't new. Henry Ford's Model Ts ran on it. What's changing is the cost of distilling ethanol and the advantages it brings over rival fuels. Energy visionaries like to dream about hydrogen as the ultimate replacement for fossil fuels, but switching to it would mean a trillion-dollar upheaval--for new production and distribution systems, new fuel stations, and new cars. Not so with ethanol--today's gas stations can handle the most common mixture of 85% ethanol and 15% gasoline, called E85, with minimal retrofitting. It takes about 30% more ethanol than gasoline to drive a mile, and the stuff is more corrosive, but building a car that's E85-ready adds only about $200 to the cost. Ethanol has already transformed one major economy: In Brazil nearly three-quarters of new cars can burn either ethanol or gasoline, whichever happens to be cheaper at the pump, and the nation has weaned itself off imported oil.

And have you heard about GM's yellow gas caps? In the next few weeks the auto giant is set to unveil an unlikely marketing campaign drawing attention to E85 and its E85-ready cars and trucks like the Chevy Avalanche. They will sport special yellow gas caps, and if you already own such a vehicle, GM will send you a gas cap free. California governor and Hummer owner Arnold Schwarzenegger is backing a ballot initiative that would encourage service stations to offer ethanol at the pump. Even big oil companies like Royal Dutch Shell and Exxon Mobil are funding ethanol research. Says Beth Lowry, GM's vice president for energy and environment: "People's perception used to be 'The agricultural lobby is very interested in it.' Now people are waking up and saying, 'This isn't just about the Midwest. This is about the U.S. as a whole.' " Adds Daniel Yergin, one of the country's top energy experts: "I don't think I've seen so many kinds of renewable energy fermenting and bubbling as right now. The very definition of oil is broadening."

Not that ethanol will replace gasoline overnight. There are 170,000 service stations in the U.S.; only 587 (count 'em!) sell E85. To refine enough ethanol to replace the gas we burn (140 billion gallons a year) would require thousands of biorefineries and hundreds of billions of dollars. Yet one of capitalism's favorite visionaries is convinced that very soon filling up on weeds and cornhusks will be no more remarkable than tanking up on regular. Says Richard Branson, whose Virgin Group is starting an ethanol-inspired subsidiary called Virgin Fuels: "This is the win-win fuel of the future."

BARRELS FROM BUSHELS
In Decatur, Ill., nobody is waiting around for the future; demand for ethanol from corn is booming right now. This grain-elevator-dotted town is home to agribusiness giant Archer Daniels Midland, which makes it the capital of the old-school heavily subsidized U.S. ethanol industry. On a blustery January day, the air is thick with fog, sleet, and condensation from the corn mills on the 600-acre complex next to ADM's corporate office. Outside the ethanol plant, the air smells like grape juice gone bad. Inside, with its giant vats and fermentation towers, the biorefinery resembles a winery, but it's much noisier.

ADM used to call itself "Supermarket to the World." Today, reflecting its emergence as an alternative-energy supplier, it boasts of being "Resourceful by Nature." The company created the corn-ethanol industry when Jimmy Carter asked it to in 1978--the oil-shocked President wanted a homegrown alternative to gasoline. ADM now pumps out more than a billion gallons of ethanol per year. While the fuel accounts for just 5% of the company's $36 billion in annual sales, analysts estimate that it generates 23% of ADM's operating profit. Says Allen Andreas, the courtly 62-year-old CEO: "We've always been feeding people and looking for better alternatives; now we're doing the same thing in energy."

ADM aims to be a big player in what Andreas calls the shift "from hydrocarbons to carbohydrates." But for now it's ignoring E85 and cellulosic ethanol in favor of keeping pace with demand that is already booming. Corn ethanol's main use is as an additive that helps gasoline burn more efficiently. ADM sells nearly its entire output to oil companies, which use ethanol as a substitute for MTBE, a petroleum-based additive that is toxic and is now banned in California and 24 other states. With two billion gallons of MTBE still in use annually and 25 states that have yet to ban it, the ethanol industry could grow 50% simply by replacing MTBE.

In September, ADM announced a nearly 50% expansion project, or 500 million new gallons of annual production capacity. Archrival Cargill is belatedly ramping up ethanol production, and new entrants are using private capital to build ethanol plants. The only publicly traded pure-play ethanol maker, Pacific Ethanol of Fresno, plans to build five plants in California and has raised a total of $111 million, including $84 million from Bill Gates. (For a guide to playing the ethanol boom, see Investing.) All told, the planned projects represent a nearly $2.6 billion investment and will increase U.S. ethanol capacity by 40%.

Other major players are making long-term ethanol bets. Ford is working with VeraSun, a startup in South Dakota, to promote E85 fueling stations. Shell is the primary backer of Canada's Iogen, which is attempting the first large-scale production of cellulosic ethanol--the kind made from cornstalks and grasses--at a pilot plant in Ottawa (see following story, "Biorefinery Breakthrough"). Exxon Mobil has pledged $100 million to Stanford University for research into alternative fuels. The oil giant's new CEO, Rex Tillerson, visited the campus last year to hear what researchers are cooking up. Biology professor Chris Sommerville says the change in the industry is palpable: "I went to six scientific conferences on biofuels last year; the previous 29 years I didn't go to any."The biggest alternative-fuels player of all, of course, is Uncle Sam. Oil refiners receive a 51-cent tax credit for every gallon of ethanol they blend into their gasoline. That alone will cost taxpayers more than $7 billion over five years, estimates the Congressional Budget Office. The U.S. has also funded research into biodiesel, which uses deep-fryer grease and other nontoxic ingredients to replace regular diesel fuel. (See box at left.) But ethanol will never really take off unless consumers demand it, and while the U.S. industry still relies on taxpayer largesse, Brazil has leaped to the next step: a profitable free-market system in which the government has gotten out of the way.

HOW BRAZIL BEATS THE U.S.
Near the prosperous farm town of Sertãozinho, some 200 miles north of São Paulo, the fuel that will fill the tanks of nearly three million Brazilian cars in a few months is still waist-high. Lush sugar-cane fields stretch as far as the eye can see, interrupted only by the towering white mills where the stalks of the plants will be turned into ethanol when the harvest begins in March.

Brazil boasts the biggest economy south of Mexico, and with annual GDP growth of 2.6%, it is a powerhouse you might expect to consume growing amounts of oil, coal, and nuclear energy. But Brazil also happens to have the perfect geography for growing sugar cane, the most energy-rich ethanol feedstock known to science. And so, for Brazil's 16.5 million drivers, there is ready access to what's known in Portuguese as álcool at nearly all of the country's 34,000 gas stations. "Everyone talks about alternative fuels, but we're doing it," says Barry Engle, president of Ford Brazil. Ethanol accounts for more than 40% of the fuel Brazilians use in their cars.

While oil frequently has to be shipped halfway around the world before it's refined into gasoline, here the sugar cane grows right up to the gates of Sertãozinho's Santa Elisa mill, where it will be made into ethanol. There's very little waste--leftovers are burned to produce electricity for Santa Elisa and the local electrical grid. "The maximum distance from farm to mill is about 25 miles," says Fernando Ribeiro, secretary general of Unica, the trade association that represents Brazilian sugar-cane growers. "It's very, very efficient in terms of energy use."

Although Brazilians have driven some cars that run exclusively on ethanol since 1979, the introduction three years ago of new engines that let drivers switch between ethanol and gasoline has transformed what was once an economic niche into the planet's leading example of renewable fuels. Ford exhibited the first prototype of what came to be known as a flex-fuel engine in 2002; soon VW marketed a flex-fuel car. Ford's Engle says flex-fuel technology helps avoid problems that had plagued ethanol cars, such as balky starts on cold mornings, weak pickup, and corrosion.

Consumers loved flex-fuel because it meant not having to choose between ethanol and gas models--memories were still fresh of the 1990 sugar-cane shortage, when ethanol-car owners found themselves, well, out of gas. Today "nobody would buy an alcohol-only car, even with tax incentives," says sales manager Rogerio Beraldo of Green Automoveis, a sprawling dealership in São Paulo. "Brazilians are traumatized by our earlier experience, when supplies ran out. But with flex-fuel, there's no risk of that."With Brazilian ethanol selling for 45% less per liter than gasoline in 2003 and 2004, flex-fuel cars caught on like iPods. In 2003, flex-fuel had 6% of the market for Brazilian-made cars, and automakers were expecting the technology's share to zoom to 30% in 2005. That proved wildly conservative: As of last December, 73% of cars sold in Brazil came with flex-fuel engines. There are now 1.3 million flex-fuel cars on the road. "I have never seen an automotive technology with that fast an adoption rate," says Engle.

Ethanol's rise has had far-reaching effects on the economy. Not only does Brazil no longer have to import oil but an estimated $69 billion that would have gone to the Middle East or elsewhere has stayed in the country and is revitalizing once-depressed rural areas. More than 250 mills have sprouted in southeastern Brazil, and another 50 are under construction, at a cost of about $100 million each. Driving to lunch at his local churrasco barbecue spot in Sertãozinho, the head of the local sugar-cane growers' association points to one new business after another, from farm-equipment sellers to builders of boilers and other gear for the nearby mills. "My family has been in this business for 30 years, and this is the best it's been," says Manoel Carlos Ortolan. "There's even nouveaux riches."

The key to Brazil's success is that consumers are choosing ethanol rather than being forced to buy it. Brazil's military dictators tried the latter approach in the 1970s and early 1980s, by offering tax breaks to build mills, ordering state-owned oil company Petrobras to sell ethanol at gas stations, and regulating prices at the pump. This bullying--and cheap oil in the 1990s--nearly killed the market for ethanol until flex-fuel came along. The regime wasn't good for much, says consultant Plinio Nastari, but it did create the distribution system that enables drivers to fill up on ethanol just about anywhere.Even though the U.S. will never be a sugar-cane powerhouse like Brazil, investors now view Rio as the future of fuel. "I hate to see the U.S. ten years behind Brazil, but that's probably about where we are," says one shrewd American freethinker, Ted Turner.

ETHANOL FINDS A GODFATHER
There are venture capitalists, and then there's Vinod Khosla. A co-founder of Sun Microsystems and a partner at Kleiner Perkins, he was an early backer of Juniper Networks, whose technology helped end decades of dominance by traditional telecom manufacturers. A lean, 50-year-old native of India, Khosla says, without a hint of modesty, "I love the challenge of breaking monopolies."

Frustrated that Kleiner Perkins wasn't taking enough risks after the dot-com crash, Khosla opted out of Kleiner's most recent fund and started his own group, Khosla Ventures. He'd been dabbling in environmentalism but never expected to become an investor. Brazil's success, however, made him wonder about ethanol's U.S. potential. "I spent two years trying to convince myself that this was never going to be more than another minor alternative fuel," he says. "What I discovered was that ethanol might completely replace petroleum in this country. And a lot of countries. This was a great shock to me."

Pretty soon Khosla was surprising plenty of others. He put together a PowerPoint presentation, "Biofuels: Think Outside the Barrel," which he fires up on a moment's notice. He has made the pitch on ethanol to the President's Council of Advisors on Science and Technology and elsewhere in the White House. He is also behind California's upcoming ballot initiative to fund a subsidy for gasoline retailers that add E85 fuel pumps. "Getting distribution going is the real problem," says Khosla. "We need to increase blending and then introduce E85 pumps, and the possible will become the probable."

His conversion to energy investing is part of a Silicon Valley trend, as VCs seek the rapid growth and giant markets that computers once offered. VantagePoint Venture Partners in San Bruno, for instance, established a fund called New Energy Capital that invests in ethanol, wind power, and other energy projects. Nth Power, a San Francisco energy-investment firm, estimates that $700 million of the $21 billion flowing into venture funds last year were earmarked for "clean technology" startups.

CELLULOSE NIRVANA
No one, not even a professionally optimistic VC, thinks we're anywhere near getting rid of gasoline. The oil superstructure is simply too efficient and too entrenched to just go away. Nor could corn ethanol generate enough fuel to run America's cars, pickups, and SUVs. Already ethanol gobbles up 14% of the country's corn production. Converting a bigger share into fuel would pinch the world's food supply--a favorite objection of skeptics. Critics also contend that producing fuel from crops consumes more energy than it yields. On this topic of endless Internet bickering, the Energy Department recently reported, "In terms of key energy and environmental benefits, cornstarch ethanol comes out clearly ahead of petroleum-based fuels, and tomorrow's cellulosic-based ethanol would do even better."

Because cellulosic ethanol comes from cornstalks, grasses, tree bark--fibrous stuff that humans can't digest--it doesn't threaten the food supply at all. Cellulose is the carbohydrate that makes up the walls of plant cells. Researchers have figured out how to unlock the energy in such biomass by devising enzymes that convert cellulose into simpler sugars. Cellulose is abundant; ethanol from it is clean and can power an engine as effectively as gasoline. Plus, you don't have to reinvent cars. Ratcheting up production of cellulosic ethanol, however, is a gnarly engineering problem.

The onus now is on companies like Genencor, a Palo Alto biotech. Its biological enzymes are used to break down stains in Tide detergent and achieve just the right distressed look in blue jeans. But making underpants whiter and denim bluer is nothing compared with breaking America's longstanding addiction to gasoline. The best way to do this would be to bring down the cost of ethanol to the point where consumers clamor for it. Before flex-fuel engines came along, Brazilians would mix their own rabo de galo (cocktail) of ethanol and gasoline when filling up, simply because it was cheaper than straight gas. Genencor says its enzymes have cut the cost of making a gallon of cellulosic ethanol from $5 five years ago to 20 cents today. Now refiners have to learn how to scale up production. Canada's Iogen is the furthest along in commercialization; another hopeful is BC International, a Dedham, Mass., company that's building a cellulosic ethanol plant in Louisiana.

There's still a role for government--and we don't mean more handouts for corn growers or distillers. The recently enacted energy bill takes steps in the right direction, like mandating the use of 250 million gallons of cellulosic ethanol a year by 2013, but much more can be done. Easing the tariff of 54 cents per gallon on imports of ethanol from Brazil and other countries would certainly help. Because sugar cane generates far more ethanol per acre than corn, Brazil can produce ethanol more cheaply than the U.S. Not only would importing more of it broaden access to ethanol for U.S. buyers, but it would also make it cheaper for the ultimate consumers--us. That in turn would spur demand at the pump and encourage service station owners to offer ethanol more widely. What's also needed is for someone big--like Shell or BP, which tout themselves as green companies--to commit to cellulosic ethanol on a commercial scale. Shell's bet on Iogen is minuscule compared with the $20 billion it plans to spend on producing oil and gas off Russia's Sakhalin Island.

Of course, the timing of when ethanol goes from dream to reality isn't just a matter of an investment here or a subsidy there. It took decades of ferment in Brazil before serendipity in the form of high gas prices and flex-fuel engines made ethanol an everyday choice for consumers. But the sooner we start, the greater our ability to shape a future that's not centered on increasingly expensive oil and gas. It's not as if gasoline demand is going to go down: As long as the Chinese and the Indians want our lifestyle--and they do--you can forget about oil at $10 or even $20 a barrel. Whatever the technological challenges, a world of abundant, clean ethanol is suddenly looking a lot more realistic than a return to the days of cheap, inexhaustible oil.

FEEDBACK alashinsky@fortunemail.com; nschwartz@fortunemail.com; sbrown@fortunemail.com