Study of domestic coal-based dimethyl ether (DME) utilization to reduce LPG import

This study evaluates the utilization of domestic coal-based dimethyl ether (DME) to substitute 15% of the total household sector demand of LPG import projected to year 2040 and the impact to the saving of state budget. Maximum LPG-DME blending in this study is 85% - 15% weight. DME-LPG mixture price at depot will be calculated based on DME FOB price at production plant, shipping cost, mixing and handling cost. The result of the research shows that DME-LPG mixture price and the import LPG price at each depot are 391 USD/MT and 620 USD/MT at Depot Tanjung Priok, 390 USD/MT and 620 USD/MT at Depot Eretan, 396 USD/MT and 622 USD/MT at Depot Tanjung Perak, 397 USD/MT and 622 USD/MT at Depot Gresik, and 401 USD/MT and 624 USD/MT at Depot Semarang. The substitution of LPG import with domestic coal-based DME results the saving of state budget about 388 million USD (IDR 5,332 billion). It concludes that the utilization of domestic coal-based DME is economically feasible to reduce the import of LPG per metric ton (MT), obtain the saving for state budget, and help the government to decrease the dependency of import LPG to maintain the national energy security.


Introduction
Since 2015, LPG demand in Indonesia reached 7.5 million TOE (tonne of oil equivalent) meanwhile the existing national production only 2.9 million TOE. Therefore, in 2016 the LPG import reached 67% of total national demand and the amount of state budget about 2,647 million USD (IDR 36,367 billion). It is necessary to find alternative energy that can help the government to reduce the burden of LPG import that impact on state budget saving. One of the alternative energy to substitute LPG import is Dimethyl Ether (DME). DME has similar characteristics to LPG. DME can be produced from coal, natural gas, and biomass. However, the production of DME from coal provides the lowest production cost [1]. Indonesia as the second highest coal exporter country in the world contributes 28% of world's need [4]. Ironically, from the total national coal production in 2015, more than 75% was exported to other countries [8]. In fact, with total reserves of domestic coal per year 32.3 billion metric tons (MT) and the average coal demand growth of 6% per year, the reserves can be produced up to 40 years. So, the DME production from domestic coal can be sustained. Therefore, this study will evaluate the feasibility of coalbased DME utilization to reduce LPG import in Indonesia. This utilization will not only optimize the use of domestic coal but also overcome the growing LPG demand.

Characteristic of DME
The largest market of DME is as blend fuel with LPG for the residential cooking and heating, particularly in China [3]. This is related to the fact that DME can be blended with LPG up to 15% weight and would not require any modification either in the existing distribution infrastructure or in the users' appliances [7].
From some studies it is known that DME is an alternative fuel that can be used as a mixture for other fuels or even as pure DME [2]. Here is a comparison between DME and LPG in Table 1. Based on the table, it can be seen that DME has similar characteristics to LPG but has a lower heating value than LPG. In this study will be evaluated the feasibility of DME-LPG as a mixture to substitute LPG import.

DME-LPG Mixture
The research that assess the amount of fuel consumption need for the burner test, has been done by PPPTMGB Lemigas by modifying burner which is generally used in household sector. It is given the same burning load and the result showed that the average amount of LPG consumption about 0.24 kg while the average amount of DME consumption about 0.35 kg [1]. Therefore, the equivalence of DME and LPG fuels from the test results on the modified burner is 1.5 which means that 1 kg of LPG is equivalent to 1.5 kg DME. This value becomes a reference in the economic calculation analysis. Meanwhile, the specification for DME as household and industrial fuel in Indonesia is regulated in Decree of The Director General of Oil and Gas Number 990.K/10/DJM.S/2013, as follows in Table 2.

DME Demand for Household Sector in 2040
The limitation of this study is the amount of DME that will be evaluated to substitute LPG imports is 15% of the total imported LPG demand in 2040. Because the maximum amount of DME that can be blended with LPG is only 15% weight (85% weight LPG) without any modification to the existing household sectors' facilities. The LPG demand forecasting in 2040 is calculated based on Indonesia Energy Outlook (IEO) 2016 data in business as usual (BAU) scenario with increasing LPG demand 2% per year. LPG import demand forecasting in 2040 is 8,442,253 MT. Based on this study limitation, therefore the amount of DME demand in 2040 is 1,899,507 MT. Then it will be evaluated to assess the feasibility of substituting LPG import with the domestic coal-based DME and state budget saving that can be obtained from the substitution.

DME Distribution Scheme
The DME distribution scheme follows the existing LPG distribution scheme. This can be applied because they have the same characteristics. Moreover, LPG has a higher saturated vapor pressure than DME so the equipment designed for LPG can also be used for DME. The DME distribution scheme analysed in this study is limited to the shipment from the DME plant in East Kalimantan to the depots, as described by the figure below.

Fig. 1. DME Distribution Scheme from DME Plant to Depots
This scheme is applied for DME distribution from DME plant to each depots. Based on the previous study [7], the selected depots in this study are depots which regularly receive imported LPG and already have blending facilities to mix propane and butane. Those depots are Tanjung Priok Depot, Eretan Depot, Tanjung Perak Depot, Gresik Depot, and Semarang Depot.

Economic Analysis for DME-LPG
Mixture for Household Sector

Coal-based DME FOB Price Calculation
The coal-based DME FOB price referred to the previous study based on the methodology used by Phillips et al (2007) with minimum selling fuel price (MSFP) at 10% IRR [1]. In this study, coal-based DME plant is assumed to be located in East Kalimantan closed to the location of coal sources as the raw material. The calculation components of the coal-based DME FOB price are total investment cost (CAPEX), raw material efficiency, utility cost, raw material price, and electricity selling price as a DME plant by-product. CAPEX calculation of DME plant based on direct synthesis process (direct DME synthesis) used in NKK corp. Japan (2003) for plant capacity 2,500 MT/day required CAPEX 480 million USD. As to know the current price due to price escalation, the correction of price in 2003 with price index of Chemical Engineering Plant Cost Index (CEPCI) calculated using equation (1) Table 3. Another parameter for the FOB DME price is the efficiency of the feedstock. The efficiency of raw materials shows how much the coal needed to produce DME, where efficiency will depend on the thermal efficiency of a process or known as cold gas efficiency. Referring to CCUJ (Central for Coal Utilization) and JIE (Japan Institute Energy), DME production from coal has an efficiency 60% or 46 MMBTU/MT DME. Besides, utility costs such as water, electricity and other costs required in producing DME also affect the FOB DME price. Utility costs will depend on the type of DME synthesis process. For DME production process according to CCUJ data (2003) is 5.3 USD/MT DME. Using equation (1) due to the price correction of 2003 to 2017 obtained 7.6 USD/MT DME.
The coal price as raw material also affects the price of coal-based DME FOB price. Raw material price refers to Coal Reference Price (Harga Batubara Acuan) for December 2017 is 94.04 USD/MT [5] or equivalent to 4.65 USD / MMBTU with the assumption that 1 ton of coal is equivalent to 20,224,900 BTU. Meanwhile, the sale of electricity as a by-product of the DME plant is obtained due to the low gas efficiency of the coal gasification process only about 60%. Therefore, the remaining heat released can be utilized to generate electricity through turbine gas. The assumptions used are thermal efficiency of turbine gas 35%, heat rate 10,000 BTU/KWh, and capacity factor 75%. The calculation uses the equation as follows. : capacity factor (%) by using equation (2) the result obtained that the amount of power generated from the DME production process from coal is 483 KWh/MT DME. The data and assumptions used to calculate the FOB DME price are as shown in Table 4. 0.5% CAPEX Based on these data and assumptions, using Discounted Cash Flow method, the coal-based DME FOB price at IRR 10% is 327 USD/MT.

Shipping Fee Calculation
Generally, the classification of vessel types used to transport refined products is based on the ability of vessel to sail through certain shipping lines and the maximum capacity of products that can be loaded in the vessel. One of the most common system in the world for vessel type classification is AFRA (Average Freight Rate Assessment). The classification is based on the deadweight tonnage of the vessel. Whereas, the vessels' maximum capacity can be calculated by 90% deadweight tonnage depending on the density of each product. AFRA Scale for ship classification is depicted in Figure 2. Based on the Figure 2, it can be seen that the vessel with the deadweight tonnage (dwt) below 25 dwt can be classified as small vessel with the maximum capacity up to 22.5 dwt. And the DME shipment from DME plant to the depots is sufficient with the small vessel. The shipping fee is calculated from the cost needed to transport DME from the plant to the location of each depots. Those depots are Tanjung Priok Depot, Eretan Depot, Tanjung Perak Depot, Gresik Depot, and Semarang Depot. The location of the DME plant is assumed in East Kalimantan closed to the source of coal as raw material. The shipping fee is calculated by the discounted cash flow method to get the minimum IRR 15%, and the result is as shown in Table 5.
According to the Table 5

Depot Fee Calculation
Currently, the imported LPG received at the depot in the existing distribution scheme are propane and butane, then they are blended at the depot. The price of imported LPG at depot then will be compared with the DME-LPG mixture price at depot. Besides coal-based DME FOB price, and shipping fee, another component in DME-LPG mixture price is depot fee. There are several parameters to calculate the depot fee, such as investment cost (CAPEX) and operating cost (OPEX) at the selected depots. The selected depots are depots that already have propane and butane blending facilities therefore the required CAPEX is only for the additional DME storage facilities.
The additional DME storage tank capacity in each depot can be calculated based on DME demand in 2040 and vessel RTD in distributing DME to each depots. The existing and additional DME storage capacities are as shown in Table 6. Based on the reference from Lemigas research [8], detailed assumptions and data in economic calculation are as shown in Table 7. Meanwhile, the operating and maintenance costs assumption used 5% CAPEX, and insurance costs 3% CAPEX. The depot fee is calculated by the discounted cash flow method to get the minimum IRR 15%, and the result is as shown in Table 8.

State Budget Saving
The state budget saving is calculated by comparing the price between DME-LPG mixture and the LPG import at depot. The DME-LPG mixture price is generated from domestic coal utilization to be processed into DME to fulfil the household sector demand in 2040. Meanwhile the LPG import price depends on the propane and butane price at the delivery point (depot) in Indonesia. The DME-LPG mixture price consists of coal-based DME FOB price, shipping fee from the DME plant to each depots, depot fee for DME handling, and the current LPG depot handling fee. Currently, LPG depot fee is 300 IDR/MT or equivalent to 21.83 USD/MT. The calculation components of LPG import price at the depot as the delivery point are as shown in Table 9.
Having obtained the value of CP Aramco, the value goes into the following equation.
LPG Import Price = CP Aramco x (1 + Import Constant) + Freight Cost … Eq. (4) Obtained from the calculation that the LPG import price is 591 USD/MT, and LPG import price at Depot will include theexisting LPG handling fee 21,83 USD/MT therefore the total LPG import price at each depots are 620 USD/MT at Depot Tanjung Priok, 620 USD/MT at Depot Eretan, 622 USD/MT at Depot Tanjung Perak, 622 USD/MT at Depot Gresik, 624 USD/MT Depot Semarang. This price becomes the reference to calculate the state budget saving compare with the economic price of DME-LPG mixture at depot. While the price of DME-LPG mixtures in each depots will depend on the distance of depot location from the DME plant that affects the number of additional DME storage tank facilities required. The comparison between LPG import and the DME-LPG mixture price at each depot are as shown in Table 10.

Coal Price vs DME-LPG Mixture Price
The sensitivity analysis of coal price towards the DME-LPG mixture price will be evaluated by the change of coal price. There are 3 (three) variances of coal price, 94.04 USD/MT or equivalent to 4.65 USD/mmbtu (HBA December 2017), increasing up to 15% and decreasing up to 15% (the range of price change based on the historical data) and the result is as shown in Table 12.
It can be inferred from the tables that the increase of coal price 15% or equal to 108 USD/MT resulted the DME-LPG mixture price increasing 32 USD/MT. Meanwhile, the decrease 15% resulted the DME-LPG mixture price decreasing 32 USD/MT. Therefore, it can be concluded that by the change 1% of coal price will affect the change of DME-LPG mixture price 2.1 USD/MT.

CAPEX vs DME-LPG Mixture Price
The sensitivity analysis of CAPEX DME Storage towards the DME-LPG mixture price at each depots will be evaluated by changing the investment cost in 2 (two) variances, plus 25% and 50%. The result is as shown in Table 13. Based on the calculation, the increase of investment cost 25% and 50% resulted the increase of DME-LPG mixture price 9-11 USD/MT. It can be concluded, by the change 1% of CAPEX DME storage at each depot will affect the change of DME-LPG mixture price 0.37-0.42 USD/MT.

IRR vs DME-LPG Mixture Price
The sensitivity analysis of IRR towards the DME-LPG mixture price at each depots will be evaluated by changing the IRR in 2 (two) variances, plus 10% and 20%. The result is as shown in Table 14. According to the calculation for IRR 10% and 20%, the increase of DME-LPG mixture price is 5-6 USD/MT. It can be concluded, by the change 1% of IRR will affect the change of DME-LPG mixture price 1.1-1.2 USD/MT.

Sensitivity Analysis of Parameters Change towards The State Budget Saving
Based on the previous sub-section about the sensitivity analysis of some parameters towards the DME-LPG mixture price, in this section we would analysis those parameters' impact to the state budget saving for the DME demand in 2040. The parameters change is calculated per 1%, it means that 1% change of parameters will affect the increase or decrease of state budget in USD/year. The result of simulation is as shown in Table 15. USD/year. Figure 3 illustrates the sensitivity of those parameters toward the state budget saving. It can be concluded that the change of Coal Price will dominantly affect the state budget saving, then the second is IRR for Depot Fee calculation and the lowest impact to the state budget saving is the change of CAPEX DME Storage at depot.