OPINION : “Lessons in Gas and LNG Governance: ‘Right Scale, Right Market’"

There was one interesting phrase that I noted from The 5th IndoPacific LNG Summit, held in Bali on July 21–22, 2026: "Right Scale, Right Market."

This phrase became the central theme of a presentation by M. Rasyid Ridha, Group Head of Engineering and Technology at PT Perusahaan Gas Negara Tbk (PGN), titled "PGN Strategic LNG Infrastructure Optimization to Enable Nationwide Expansion of Natural Gas Deployment."

The message was simple, yet highly relevant to Indonesia: the challenge in LNG development is not about determining whether large-scale or small-scale infrastructure is superior. It is about choosing the right scale for the right market.

For an archipelagic country like Indonesia, I believe this way of thinking should form the foundation of our national gas infrastructure development.

From "One Size Fits All" to "Right Scale, Right Market"

For decades, the LNG industry has been associated with massive projects: large gas fields, LNG plants with production capacities of millions of tonnes per year, large storage tanks, large LNG carriers, receiving terminals, FSRUs, and transmission pipeline networks.

This model makes perfect sense when both supply and demand are large and concentrated.

However, Indonesia is not limited to Java and Sumatra.

We have thousands of islands, geographically dispersed industrial centers, power plants with varying requirements, mining areas and smelters in remote locations, as well as commercial and residential customers who cannot all afford to wait for pipeline networks to reach them.

This is where the concept of Right Scale, Right Market becomes important.

PGN's presentation highlighted two approaches that should not be viewed as competing alternatives, but rather as complementary solutions: Large-Scale LNG and Small-Scale LNG.

Large Scale: Lower Unit Costs, but Requires a Large Market

According to the presentation, large-scale LNG development is designed to maximize the value of substantial gas reserves. Its primary advantages lie in production efficiency and economies of scale.

However, the implications are equally clear: significantly higher investment requirements and relatively limited flexibility.

On the regasification side, large facilities generally use Open Rack Vaporizers (ORVs) or Intermediate Fluid Vaporizers.

LNG is received from large LNG carriers through ship-to-ship transfers to FSRUs or through onshore jetties.

Once regasified, the gas is transported through high-pressure transmission pipelines.

The figures presented by PGN are particularly interesting.

Large-scale LNG is defined as having a capacity exceeding 3 MTPA, or approximately 420 MMSCFD, with a multi-train configuration.

Its capital expenditure (CAPEX) is categorized as very high, exceeding US$1 billion.

However, economies of scale make processing costs relatively low.

According to the presentation, liquefaction fees range from approximately US1.0–2.5/MMBtu, while regasification fees range from around US0.0–2.0/MMBtu.

This model is suitable for large and consolidated demand: markets with substantial, relatively predictable, and concentrated requirements.

Small Scale: Higher Unit Costs, but Much Greater Flexibility

The situation is different for small-scale LNG.

Its objective is not merely to achieve the lowest cost per MMBtu, but to open markets that would otherwise be uneconomical to serve through large-scale infrastructure.

According to PGN's presentation, small-scale LNG offers several advantages: expanding domestic gas utilization, responding flexibly to demand growth, reducing financial risks, accelerating commercialization, monetizing stranded gas, and serving regions that have historically been underserved.

Regasification can utilize Ambient Air Vaporizers (AAVs) or simpler skid-mounted units.

LNG receiving operations do not necessarily require large vessels.

LNG can be distributed through ISO containers or small LNG carriers, then delivered to distribution networks, pipelines, or LNG/CNG filling stations.

PGN categorizes small-scale LNG as facilities with capacities below 1 MTPA, or approximately 140 MMSCFD, typically ranging from just 0.1–0.5 MTPA per train.

CAPEX is significantly more affordable, at approximately US$10–100 million, although unit costs are higher.

Liquefaction fees were presented at approximately US2.0–5.0/MMBtu,while regasification fees ranged from around US 1.5–3.0/MMBtu.

This means that while small-scale LNG is less competitive in terms of unit costs, it offers advantages in flexibility, speed, modularity, and the ability to develop new markets.

This is why the question should no longer simply be: which option is cheaper?

A more appropriate question is: for this particular market, which scale delivers the best overall economic outcome?

Indonesia's Gas Challenges Go Beyond Reserves

There was another aspect of PGN's presentation that I consider even more important.

PGN categorized the challenges facing Indonesia's national gas utilization into four areas: Availability, Accessibility, Affordability, and Acceptability.

Under Availability—Securing Supply, the challenges include high impurity levels, natural production decline and field maturity, and the geographical distance between gas resources and demand centers.

This is a longstanding challenge for Indonesia.

We may have gas resources, but those resources are not necessarily available where and when consumers need them.

Then there is Accessibility—Building Infrastructure.

The challenges include low utilization of certain infrastructure assets, fragmented planning, disconnected networks, geographical constraints, and economies of scale.

This is where Indonesia's challenges become particularly unique.

Building thousands of kilometers of pipelines across the sea to serve small markets is often economically unviable.

On the other hand, allowing these regions to remain dependent on diesel or other petroleum-based fuels is not a sustainable long-term solution either.

Gas Must Be Able to "Sail"

This is precisely why Indonesia needs the concept of a virtual pipeline.

Gas does not always have to travel through steel pipelines.

Gas can "sail" as LNG aboard small vessels.

It can be transported in ISO tank containers.

It can also be delivered as CNG using tube skids or other transportation methods before eventually entering local distribution networks.

The infrastructure map presented by PGN illustrated different approaches for Western and Eastern Indonesia.

In the western region, particularly in areas with high demand density and relatively developed infrastructure, the approach is moving toward an integrated pipeline concept with virtual pipelines as supporting infrastructure.

In contrast, Eastern Indonesia's archipelagic geography, dispersed demand, and limited pipeline infrastructure make a virtual pipeline concept supported by clustered pipeline systems more relevant.

In my view, the distinction between these two approaches is extremely important.

In Western Indonesia, virtual pipelines complement physical pipelines.

In Eastern Indonesia, local pipelines may instead serve as supporting infrastructure for virtual pipelines.

This is what I consider a paradigm shift in gas infrastructure development.

Do Not Wait Until Every Island Is Connected by Pipeline

Indonesia does not need to wait for the establishment of a fully integrated Trans-Indonesia Gas Pipeline before increasing domestic gas consumption.

We can develop the gas ecosystem gradually.

For example, a small LNG carrier can transport LNG to a secondary receiving terminal.

From there, LNG is regasified to supply power plants, smelters, or industrial areas.

As demand grows, local pipeline networks can be developed.

When several clusters expand, those networks can eventually be interconnected.

In this way, demand grows alongside infrastructure, rather than constructing massive infrastructure first and then waiting for demand that may or may not materialize.

This approach is also consistent with PGN's LNG business, which covers liquefaction, storage, transportation, and regasification to support gas transmission and distribution.

PGN LNG has also operated the Lampung FSRU since 2014, with a capacity of approximately 1.5–2 MTPA.

From Upstream to Households

Another interesting aspect is the breadth of PGN's portfolio.

On the upstream side, the company is involved in oil and gas production through entities within its business group.

In the midstream segment, PGN operates gas transportation, LNG, CNG, and regasification infrastructure businesses.

Meanwhile, in the downstream segment, gas reaches various customer groups, including power plants, industries, commercial establishments, households, transportation users, gas filling stations (SPBG), and Mobile Refueling Units.

In other words, the gas business should not be viewed in isolated segments.

It is not enough to simply ask: how much gas is available in reserves?

We must also ask: who are the buyers, how much gas do they require, where are they located, how will the gas be delivered, what price can consumers afford, and which infrastructure solution is the most economical?

This also explains why LNG is important for industries such as smelters.

Many smelters are located far from pipeline networks, while their production processes require large, stable, and continuous energy supplies.

LNG enables gas to reach such locations without having to wait for the development of permanent pipeline infrastructure.

The Next Challenge: Affordability

The availability of LNG does not automatically solve the problem.

PGN's presentation identified Affordability—Creating Demand as the third challenge.

This includes purchasing power, competition with alternative fuels, price volatility, high switching costs, and expensive logistics.

This is a point we often overlook.

Technically, LNG can be delivered almost anywhere.

But the commercial question is:

Will the delivered gas price remain competitive for the end consumer?

Small-scale LNG may require significantly lower initial investment than large LNG projects, but its cost per MMBtu is higher.

When shipping, storage, handling, regasification, and local distribution costs are added, the final delivered price may lose competitiveness against alternative fuels.

Therefore, right scale must always be accompanied by right logistics and right market.

Acceptability: Do Not Forget the Consumers

The fourth challenge is Acceptability—Creating Demand, which includes end-user readiness and contractual constraints.

Infrastructure may be developed, and LNG may be available, but if industries are unwilling to convert their burners, power plants are not ready to receive gas, contracts lack flexibility, or consumers are concerned about supply continuity, demand will still fail to materialize.

In other words, national gas development is not merely an engineering project.

It involves:

engineering + commercial + financing + regulation + market development.

This is why developing demand clusters is so important.

Not Just Building Infrastructure, but Developing an Ecosystem

In its Key Takeaways, PGN emphasized four main requirements.

First, Stakeholder Collaboration.

Collaboration among government, industry, and end users must be strengthened.

Second, Infrastructure Development Support.

This includes not only LNG terminals and gas pipelines, but also ports, logistics, shipping, and industrial clusters.

Third, Financial Support.

Sustainable financing must be secured through both public and private investment.

Fourth, Regulatory Support.

Investment certainty must be strengthened through stable regulations, simplified permitting processes, and competitive gas prices.

All four elements are interconnected.

There is little value in building an LNG terminal if the port infrastructure is not ready.

There is little value in purchasing a small LNG carrier if consumer demand volumes are insufficient.

There is little value in constructing a distribution network if upstream gas supplies remain uncertain.

Conversely, gas producers also face difficulties reaching Final Investment Decisions (FID) when markets and infrastructure are not clearly established.

This resembles the chicken-and-egg dilemma that has challenged Indonesia's gas industry for years.

Therefore, Start by Building Clusters

In my view, the solution is to move away from the approach of "building everything at once" toward gas cluster-based development. Start with a gas source or LNG hub.

Identify anchor buyers: power plants, smelters, industrial estates, fertilizer producers, or other major industries.

Then incorporate medium-sized and smaller customers in the surrounding areas.

Serve them through a combination of pipelines, LNG, and CNG.

As volumes increase, virtual pipelines can evolve into physical pipelines.

As clusters expand, connect them with other clusters.

Over time, a national gas network will emerge—not merely a national pipeline network.

The distinction may appear small, but conceptually, it is significant.

Our objective is not to build as many kilometers of pipelines as possible.

Our objective is to deliver as much gas as possible, economically, to consumers who need it.

Therefore, pipelines, LNG, and CNG should not compete against one another.

They are simply different modes of transporting the same energy molecules.

Indonesia Needs a "Gas Archipelago"

I envision Indonesia's future gas system as a Gas Archipelago.

In Java and parts of Sumatra, the backbone would consist of integrated pipeline networks, supported by LNG and CNG as balancing mechanisms and beyond-pipeline solutions.

In Kalimantan and Sulawesi, the system could develop around industrial clusters, smelters, power plants, and economic zones.

Meanwhile, Maluku, Nusa Tenggara, and Papua could rely on small-scale LNG networks, small LNG carriers, satellite terminals, ISO tanks, and local pipeline networks.

In 2026, PGN itself continued to emphasize strengthening integrated infrastructure and beyond-pipeline solutions, including CNG and LNG.

According to information reported by the Indonesian Gas Society, PGN's planned CAPEX for 2026 reached approximately US353million,witharoundUS219 million allocated to gas transmission and distribution infrastructure, including pipelines, CNG, and LNG.

This means that the concept presented in Bali is not merely an academic discussion.

The direction of infrastructure development is indeed moving toward this approach.

Gas Does Not Have to Wait for Pipelines

From M. Rasyid Ridha's presentation, I took away one important lesson.

For too long, we have viewed Indonesia's gas challenges primarily from the supply side.

We take pride in discovering large reserves.

We are busy calculating TCF figures.

But gas that remains thousands of meters beneath the Earth's surface has yet to generate economic value for society.

Gas only creates value when it is produced, transported, processed, distributed, and ultimately used productively by consumers.

That is why our real challenge is not merely finding gas, but connecting gas to market.

And for an archipelagic country like Indonesia, that connection does not always have to be a pipeline.

Sometimes gas must flow.

Sometimes it must be compressed.

Sometimes it must be liquefied.

And to reach our thousands of islands, sometimes gas must indeed sail.

That is the essence of Right Scale, Right Market.

It is not about "large scale versus small scale."

It is about "large scale AND small scale," deployed in the right markets, with the right infrastructure, at the right time.

Because ultimately, the success of national gas development should not be measured by how many kilometers of pipelines we have constructed or how many LNG terminals we own.

The true measure is far simpler:

How many people, industries, power plants, and economic centers throughout the Indonesian archipelago can finally benefit from natural gas that is reliable, affordable, and sustainable?