The Government Redirects LPG Subsidies to Coal Gasification. It Has Failed Before.
The GOVERNMENT plans to redirect liquefied petroleum gas (LPG) subsidies to the dimethyl ether (DME) project, a gas produced through coal processing. Speaking to Tempo, Special Advisor to the Minister of Energy and Mineral Resources Satya Hangga Yudha Widya Putra said the plan to reallocate LPG subsidies to DME aligns with President Prabowo Subianto’s agenda of energy self-sufficiency.
According to Satya, Indonesia imports 6.91 million tons of LPG annually. These imports cover the gap between national LPG consumption of 8.9 million tons annually and domestic production of 1.97 million tons. “To reduce dependence on LPG, we need to encourage and maximize the use of DME,” he said on Tuesday, December 16, 2025.
Satya’s statement echoes that of Deputy Minister of Energy and Mineral Resources Yuliot Tanjung. Yuliot said the government is currently calculating DME’s cost of goods sold to determine the required subsidy level. “If there is indeed a subsidy, it would be a reallocation of the budget that has so far been allocated to LPG,” he said on Friday, December 12, 2025, as quoted by Antara.
DME is a downstream coal product produced by gasification. The idea of processing coal into DME was initiated during President Joko Widodo’s administration in 2020. The project was undertaken by PT Bukit Asam Tbk (PTBA), PT Pertamina (Persero), and U.S.-based Air Products and Chemicals, Inc. However, Air Products withdrew from the project in 2023. After a long hiatus, the government plans to restart the project in 2026 with a new partner.
The plan to process coal into DME is expected to include the Daya Anagata Nusantara Investment Management Agency (Danantara) as an investor. On Wednesday, December 10, 2025, Danantara Indonesia’s Senior Director for Oil and Gas and Petrochemicals, Wiko Migantoro, said the project’s feasibility study was still being finalized. According to him, DME development requires subsidies to bring its price closer to that of LPG.
This year, DME prices remain higher than LPG. Economist Muhammad Ishak Razak of the Center of Reform on Economics said DME prices range from US$900–1,000 per ton, while LPG prices range from US$470–630 per ton. Based on these prices, Ishak said the government would have to bear larger subsidies if LPG were replaced with DME.
Another issue is that DME’s energy content per ton is 1.1–1.4 times lower than that of LPG. As a result, Ishak said, costs would increase further if the government aims to produce the same amount of energy at the same level of subsidy. In the 2025 State Budget, the government allocated Rp 87.6 trillion in subsidies for 8.17 million metric tons of LPG, or about Rp 10,720 per kilogram.
“With higher prices and lower energy content, using DME to replace LPG would increase the subsidy burden to between Rp 96 trillion and Rp 141 trillion per year,” Ishak said on Tuesday, December 16, 2025.
According to Ishak, to make DME affordable, production costs could be reduced through incentives such as value-added tax (VAT) exemptions. However, such a policy would also reduce state revenues.
Therefore, he said, replacing LPG with DME is not a simple matter. “Unless the new investor can find a technology that significantly reduces production costs,” he said.
National Coordinator of Publish What You Pay (PWYP) Indonesia, Aryanto Nugroho, also said that redirecting LPG subsidies to coal-based DME is not the right policy. According to him, this uneconomic, high-cost project risks making Indonesia even more dependent on fossil energy.
Moreover, there is a risk of project failure, as in 2023 when Air Products withdrew. “Subsidies should protect the poor. If they are redirected to projects with a high risk of failure, they could burden the state budget without clear long-term benefits,” he said.
Beyond being uneconomic, Aryanto said DME development has negative environmental impacts. These include increased carbon emissions, greater deforestation to source coal, and the legacy of damage from mining pits that are often left unreclaimed. “Redirecting subsidies from vulnerable communities to corporate projects also risks raising household energy costs if DME is not competitive,” he said.
Instead of continuing the coal-based DME project by tapping LPG subsidies, PWYP recommends that the government limit coal expansion through disincentives. In addition, Aryanto said, the government should focus on policies to realize a just energy transition. “What is more urgently needed right now is investment in renewable energy, not prolonging fossil fuels.”
Source: Tempo