Securing the Passage of World's Energy through the Archipelago

The US move to create a naval base in northern Australia close to the South China Sea can actually mean more dollars in the Indonesia's pocket. The first piece of evidence has come by way of Australia's decision to exploit their gas reserves for fueling the Asia Pacific Economy. President Obama made the case that the new defense pact between the U.S. and Australia is vital to protecting commercial traffic in the Pacific. Speaking to nearly 1,700 Australian troops and a few dozen Marines, Obama laid out a reason why "we're deepening our alliance here." “This region," he said, "has some of the busiest sea lanes in the world, which are critical to all our economies."


The US move will provide a sense of protection to East Asian countries including Japan, who have serious conflicts with China but buy vast amounts of Chinese goods. The new found protection will encourage East Asia to reduce its dependence on China for goods and enhance economic ties with Indonesia and other South East Asian countries, one expert in International Trade said.


Japan, Vietnam and Indonesia will feel more secure. Indonesia and its neighbors can get together to control the Malacca Straits, which is the route through which 80% of Chinese imports of oil from Middle East and Africa passes.


There are signs that China is jittery about the US move to station 2,500 US marines in the Northern Territory of Australia within five years. Beijing on Thursday warned Australia it might get "caught in the crossfire" if it allows the US to exercise its naval might in the waters around it. Washington's move has put the US navy within easy sailing reach of Vietnam, which is involved in a serious territorial dispute over oil-rich islands in the South China Sea.


When it comes to exporting of manufactured goods, Indonesia and ASEAN countries cannot replace China yet, which currently has only basic manufacturing Industry to offer, one expert said. Indonesia will need to retool its export basket if it seriously wishes to compete with China as a provider of low-cost goods in the world, he said.


But, one particular opportunity for Indonesia which is still grossly underutilized is not in manufacturing but in energy infrastructure, especially in the downstream sector. The diagram below highlight the looming energy crisis in the world which will lack liquid fuel supply to meet its demand. 

With the high crude prices which has been predicted to reach $200/barrel in 2012 due to the security crisis in Iran, the Oil & Gas industry will be forced to look for other alternatives than conventional petroleum reserves if the world does not want to see the interruption of liquid fuel supply. This is a promising future for Methanol as Energy Carrier of choice in the region, which makes more sense in a high crude price environment. Currently, Methanol is made from natural gas and coal, and in the future can be made in industrial scale from renewable resources such as biomass and geothermal steam.

As the diagram shows above, Gas to liquid and Coal to liquid route to Methanol will become one promising industry to look, especially for Indonesia, a country which still has huge reserves of natural gas and coal all over the archipelago. Indonesia's move to develop its downstream energy sector should make this country an important player in Energy sector in Asia Pacific region and asserts its geopolitical role in the world. 



The political risk in Indonesia has substantially declined in the last few years due to the political. social and economical reformation that swept the country since 1998. If it continues to drop, Indonesia will become an attractive alternative to China at a time when Western companies are looking for alternatives. That would energize Indonesia's economy and further stabilize the regime. A more stable Indonesian regime would remove any attraction for an alignment with China and any opportunities for Chinese or Islamist subversion - even if, in the latter case, prosperity is not enough to eliminate it.

When we look at the map above, we see the importance of Indonesia. When we look at basic economic statistics, we see the strength and weakness of Indonesia. When we consider the role of China in the world economy and its current problems, we see Indonesia's opportunities. But it comes down to this: If Indonesia can provide affordable energy, especially liquid fuel to its people and beyond, Indonesia has a strong future, and that future depends on it becoming the low-cost factory to the world as an alternative to China and India.


Life is more complex than that, of course, but it is the beginning of understanding the possibilities. In the end, few rational people looking at China in 1975 would have anticipated China in 2011. That unexpected leap is what Indonesia needs and what will determine its geopolitical role. Indonesia has joined G20 club and should act as "Mover and Shaker" on the world economy, and not to play a victim's card anymore.