November 2022
G7 nations have made a US$10bn offer to help Indonesia to accelerate it coal phase out, with the US and Japan taking the lead in the negotiations. The new partnership is expected to be unveiled during the upcoming COP27 UN climate conference in Egypt. The cash offers are a combination of public and private finance as well as technical assistance, which aims for Indonesia to peak emissions in the power sector by 2030 and reach net zero by 2050-2055.

The accelerated decarbonisation of Indonesia’s power mix will directly affect long-term coal production in the world’s largest thermal coal exporter. Indonesia ranks as the biggest thermal coal exporter in the world, accounting for 41% of the seaborne supply in 2022.

Coal mining in Indonesia is dominated by private sector, with mining areas allocated via a government contract mechanism. The country produced 609Mt of thermal coal in 2021, of which 317Mt were exported and 217Mt were consumed domestically including non-power sectors apart from the DMO realization.

The government intends to raise coal output to 663Mt in 2022, up by 9% from the actual volume in 2021, amid the potential for more exports to meet the temporary European demand. Indonesia's coal production totalled 361Mt by the end of July, achieving 54% of its 2022 target. This compares to only 286Mt over the same period of 2021. As of 2020, Indonesia’s coal resources were estimated at 143bnt and reserves at 39bnt.

Indonesia has committed to reduce its carbon emissions by 41% by 2030 and become carbon neutral by 2060. The country ranks in the global top ten of carbon-emitting countries with over 568Mt of CO2e in 2021. Energy transition is a latent risk for the development of thermal coal projects as major investors have withdrawn funding in fossil fuel projects to support decarbonisation efforts.


Pumping Up Production, Dropping Exports

AME forecasts that Indonesia’s thermal coal exports will drop by 6% on the year to 406Mt in 2022. This has been partially driven by the export ban in January, severe rainfall curbing production and issues with equipment. Indonesia has set its October coal benchmark price at a record high of US$331/t as demand from Europe rises.



However, the Indonesian government keeps prioritising domestic supply obligations, announcing this time a partial ban on coal exports in August. In 2022, the country will require 127Mt of coal from local producers to meet domestic energy needs, up by 13% from 2021.

Over the long term, AME forecast that Indonesia’s seaborne thermal coal supply will peak by 2030 at 403Mt to decline at a CAGR of 0.3% to 389Mt by 2040. Unlike other industries, skyrocketing prices are not supporting further investment in the thermal coal business. Thermal coal is the segment of the mining sector that is most vulnerable to long-term climate risk, as coal-powered energy generation accounted for over 40% of the overall growth in global carbon emissions in 2021.

A tighter lending policy on mining companies, more effective climate policies and stronger 2030 carbon reduction targets from the third largest thermal coal producer in the world would force companies to reduce their output to comply with new policies. Similarly, a faster fall in prices would also discourage companies from producing at full capacity. A shift in South and Southeast Asia’s current carbon-intensive pathways to renewable energy will drastically drive coal demand/supply down.


Indonesian Coal Lords

Record thermal coal prices has translated into extraordinary cash generation for Indonesian miners over the last months. Indonesia is home to four of the top ten global export thermal coal suppliers in 2022, with a combined share of 12.4%. PT Adaro Energy Tbk (3.3%), PT Bayan Resources (3.2%), PT BUMI Resources (3.1%) and PT Berau Coal (2.7%) are expected to ship over 123Mt of thermal coal to the export market this year.

PT Adaro Tbk is the largest coal exporter in Indonesia, forecast to export 33Mt of thermal coal in 2022, up by 6% from the low level in 2021. Adaro Energy’s coal sales volume totalled 27.5Mt in the first half of 2022, up by 7% on the year, with India and China accounting for 15% and 10% of Adaro’s sales volume, respectively. The company delivered 23% of its product to the domestic market.

Increased sales and high prices contributed to a 127% annual surge in revenue to US$3.5bn in the first half of the year, with the average selling price increasing by 117% from a year earlier. In the first half of 2022, the company’s net profit increased by 611% on the year to US$1.35bn. Adaro’s revenue is fully driven by coal sales, with a forecast of US$7.2bn in 2022. This represents a rise of 56% on the year, after almost doubling its revenue in 2021 compared to 2020.

AME estimates coal revenue will drop at a CAGR of -15.5% to US$3.1bn by 2027. In 2021, Adaro Energy started to develop the Carbon Abatement Project for Net Zero Emissions roadmap. Despite the company’s aims to progress towards becoming a green business, actual plans set coal to remain the ‘DNA’ of the company. In fact, Adaro Energy is yet to commit to carbon neutrality and establish actual carbon emissions reduction targets.

PT BUMI Resources Tbk is the second largest coal producer in Indonesia. AME forecasts that BUMI will export 31Mt of thermal coal in 2022, up by 7% from 2021. However, severe rainfall in key mining areas in Indonesia and issues with equipment procurement have prompted a cut in production, which saw BUMI’s production fall by 14% on the year to 34.5Mt in the first half of 2022.

The company has lowered its coal output target in the range of 70Mt to 78Mt for 2022 (100% basis). This represents a drop of 8Mt and 5Mt in the lower and upper limits, respectively. The Indonesian miner had already lowered its target for coal production to 78-83Mt in 2022, from an initial range of 83-89Mt. BUMI produced 78.8Mt in 2021.



PT BUMI Resources’ flagship coal mine Kaltim Prima Coal (KPC) is the largest export thermal coal mine globally. BUMI holds 51% interest in the mine, which produces low-ash and low-sulphur thermal coal. KPC’s coal production totalled 56.4Mt in 2021 and is forecast to reach between 52Mt and 54Mt in 2022. AME forecasts that KPC exports will increase to 48.8Mt by 2027.

Coal represents 98% of the BUMI’s total revenue, with oil accounting for the remaining 2%. In 2022, AME forecasts that BUMI’s total revenue will reach US$5.7bn, climbing by 49% on the year amid historical coal prices. The company is expected to slowly start diversifying its revenue from 2025, with the inclusion of Zinc, Lead and Silver. AME estimates coal revenue will drop at a CAGR of -13.5% to US$2.8bn by 2027.

BUMI Resources' emission reduction program focuses on lowering CO2e by decreasing energy consumption in transport and CO2 absorption through revegetation. Energy consumption is mainly reduced by minimising engine uprate and fuel burn rate for fuel savings in coal and overburden transport and replacing trucks with overland conveyors for coal transport. The company is yet to announce its carbon emissions reduction targets and has not officially committed to achieve carbon neutrality.

Indonesian companies’ sole focus on coal will represent a high risk as their revenue is principally sourced from coal sales. AME is closely reviewing the effect of global announcements putting a halt on all financial services to companies that derive 100% of its revenue from thermal coal.