INDONESIA’S decision to reduce natural gas exports to Singapore is more than an energy dispute; it is a test of whether resource nationalism can deliver the industrial transformation Jakarta has long promised.
On Oct 24, Indonesia began cutting pipeline gas supplies by 31 billion British thermal units per day (BBtud), comprising 15 BBtud from Natuna and 16 BBtud from Sumatra.
The government argues that domestic demand, particularly from the planned petrochemical industry, must take priority.
The objective is understandable, but its economic merits will depend on what Indonesia can produce with the gas it retains. Natural gas serves two competing purposes. Exports generate foreign ex- change, while domestic consumption can support manufacturing, fertiliser production and petrochemicals.
The central question is not whether domestic use is preferable to exports in principle, but which allocation creates greater economic value.
Economic value
Indonesia exported 14.04 million tonnes of natural gas in 2025, down 9.4% from the previous year. Singapore accounted for 3.22 million tonnes, worth approximately US$1.66bil.
Meanwhile, Indonesia held proven gas reserves of 34.78 trillion cubic feet. Yet abundant reserves do not automatically translate into affordable, reliable supplies for domestic manufacturers. Indonesia already directs most of its gas toward domestic consumption.
The Energy and Mineral Resources Ministry reported that gas utilisation reached 5,600 BBtud in 2025, of which 3,908 BBtud, or 69%, served domestic needs. Exports accounted for the remaining 1,691 BBtud.
These figures suggest that export restrictions alone cannot resolve industrial supply problems. The challenge is also one of distribution, infrastructure and affordability.
West Java illustrates the problem. Fulfillment under the government’s special price gas scheme, known as HGBT, fell from 88.72% of allocated volumes in 2023 to 78.68% in 2024 and 65.69% in 2025. By April 2026, it had dropped to 46.36%, as Antara news agency reported.
Some manufacturers have consequently turned to more expensive regasified liquefied natural gas (LNG). For industry, gas that exists in national production statistics but cannot reach factories at competitive prices has little practical value.
Nor can additional supplies from Natuna or Sumatra automatically substitute for gas needed in Java. Pipelines, processing facilities, transmission capacity and contractual arrangements determine whether nominal allocations become usable industrial inputs.
When manufacturers must pay more for replacement gas, production costs rise, margins narrow and investment becomes less attractive.
Export restrictions may therefore increase the volume notionally available at home without improving industrial competitiveness. The country needs investment in production, processing and transportation, along with commercially viable projects and credible demand from industrial users.
Redirecting existing exports cannot compensate for missing infrastructure or uncertain investment conditions.
The strongest argument for retaining gas domestically is that processing it can generate more value than exporting an unprocessed commodity.
Petrochemicals, fertilisers and other gas-intensive industries can create jobs, strengthen domestic supply chains and reduce reliance on imported products.
But these benefits are potential outcomes, not guaranteed consequences of restricting exports. The government must evaluate the net economic value of alternative uses, including export earnings, production costs, infrastructure investment, subsidies, employment and tax revenue.
A factory producing goods with weak demand or persistently high costs may destroy value despite receiving domestically supplied feedstock.
Conversely, a competitive petrochemical plant could generate sufficient additional value to justify prioritising domestic consumption.
The HGBT scheme illustrates why this distinction matters. Government estimates of its economic benefits, including industrial sales, investment and fiscal contributions, do not establish that every additional unit of gas redirected from exports will generate comparable returns.
The incremental benefits must be demonstrated rather than presumed. Jakarta should therefore publish a transparent framework for gas allocation.
It should identify industries capable of absorbing additional supplies, assess their production readiness, disclose infrastructure requirements and specify expected economic gains.
Performance should be measured through productivity, capacity utilisation, investment, employment and value added per unit of gas rather than simply the volume retained domestically.
The wider relationship with Singapore also deserves consideration.
Bilateral trade reached US$32.8bil in 2025, while Singapore invested US$17.4bil in Indonesia.
These figures do not mean that a gas dispute will necessarily undermine broader economic ties. They do, however, underline the importance of predictable commercial rules.
Investor confidence
Indonesia can legitimately revise its export priorities, but contractual obligations and credible long-term arrangements remain essential to maintaining investor confidence.
Singapore, meanwhile, has incentives to diversify its energy supplies as uncertainty over pipeline gas increases. LNG offers alternatives, although replacement supplies may be more expensive.
Indonesia should not assume that its position as a supplier guarantees permanent bargaining power. Its long-term leverage depends on the reliability, competitiveness and commercial attractiveness of the energy it delivers.
These considerations have wider regional implications.
South-East Asia needs reliable energy infrastructure as demand grows and domestic production faces constraints.
Cross-border energy cooperation depends on trust in the commercial arrangements underpinning long-term investments.
Indonesia does not need to preserve every export flow at the expense of domestic industry, but changes in allocation should follow clear rules and a credible industrial strategy.
In summary, Indonesia’s gas policy should be judged by its economic results.
If retaining more gas generates productive factories, better jobs, stronger supply chains and higher domestic value added, Jakarta will have a compelling case for prioritising its own market.
If manufacturers remain short of affordable supplies while export earnings decline, the policy will have secured administrative control over a resource without capturing its full economic benefits.
Energy sovereignty is not simply the power to decide where a commodity goes. It is the capacity to turn that commodity into lasting economic strength. — The Jakarta Post/ANN
Ronny P. Sasmita is a senior analyst at the Indonesia Strategic and Economic Action Institution who holds a PhD in international political economy from The University of Tokyo. The views expressed here are the writer’s own.
