Strategic Collaboration to Tap Indonesia’s Untapped Natural Gas Potential

In a significant development for Indonesia’s energy landscape, state-owned natural gas company PT Perusahaan Gas Negara (PGN) has begun strategic discussions with Mubadala Energy, a leading Abu Dhabi-based energy firm, to explore the Andaman gas supply potential off the northern coast of Sumatra. This joint initiative represents a vital step toward meeting Indonesia’s increasing natural gas demand while maximizing the value of its underutilized offshore resources.

The Andaman Block, part of the larger Aceh Basin, is believed to hold substantial reserves of natural gas. Mubadala Energy is currently the operator of the Andaman I and South Andaman Blocks and has made significant exploration progress in recent years. In 2023, the company announced a promising discovery that could redefine Indonesia’s upstream gas potential. The new collaboration with PGN signals Indonesia’s intent to ensure domestic benefit from these offshore reserves and reduce reliance on imported energy.

As PGN continues to expand its domestic gas infrastructure, this partnership with Mubadala Energy offers mutual value. It combines Indonesia’s growing market demand and infrastructure readiness with Mubadala’s technical expertise and access to capital.

Indonesia’s Gas Supply Challenge and the Role of Andaman

Indonesia, once a major natural gas exporter, is facing mounting pressure to balance its domestic needs with export obligations. With power generation, industrial usage, and household consumption on the rise, natural gas is seen as a transitional fuel to reduce emissions and improve energy security.

However, gas supply has become increasingly constrained. Several mature fields in East Kalimantan, Java, and South Sumatra are in decline, and new discoveries have not yet come online in sufficient volumes. The Andaman region, located in the underexplored western offshore territory, offers a promising solution.

According to Indonesia’s Ministry of Energy and Mineral Resources (ESDM), the Andaman working areas are estimated to contain more than 20 trillion cubic feet (TCF) of prospective gas resources. The Andaman gas supply could play a critical role in supporting national targets to expand gas infrastructure and shift industrial fuels away from coal and diesel.

PGN, a subsidiary of state energy holding company Pertamina, has been tasked with distributing natural gas across Indonesia. Its interest in the Andaman supply stems from the need to ensure stable, long-term volumes to support pipeline networks and LNG regasification terminals currently under development.

PGN and Mubadala: A Complementary Partnership

The potential cooperation between PGN and Mubadala Energy represents a strategic convergence of interests. Mubadala brings exploration and production expertise, having operated in Southeast Asia for over two decades. Its strong performance in upstream gas in Malaysia, Thailand, and Indonesia positions it as a valuable partner for new frontier developments like Andaman.

Meanwhile, PGN brings a deep understanding of Indonesia’s downstream infrastructure and customer base. With more than 4,000 kilometers of gas pipelines and over 700 industrial customers, PGN has both the scale and regulatory backing to serve as a reliable offtaker for the Andaman gas supply.

According to recent statements from PGN’s Director of Strategy and Business Development, the company is not only interested in buying gas but is also exploring the potential for joint infrastructure investments. This may include undersea pipelines, floating production units, or LNG processing facilities to deliver gas from the Andaman blocks to Sumatra, Java, and beyond.

Mubadala’s commitment to environmental and social governance (ESG) standards also aligns with PGN’s push toward more sustainable energy solutions. The two firms have discussed collaborative frameworks to ensure that gas development in the Andaman region minimizes ecological impact and includes local content in service contracts and employment.

Economic and Strategic Implications for Indonesia

If the Andaman gas supply agreement materializes, it will mark a turning point for Indonesia’s upstream gas sector, which has seen few large-scale developments in the past decade. The benefits of this partnership are manifold:

1. Strengthening Domestic Supply
2. The primary goal is to ensure that Indonesia’s domestic gas users — particularly industrial and power sectors — have access to affordable, locally sourced gas. This would support economic growth and reduce the country’s vulnerability to global energy price volatility.
3. Boosting Energy Sovereignty
4. With tensions in global gas markets and growing protectionist policies among LNG exporters, Indonesia must strengthen its own supply chains. The Andaman field, due to its strategic location near the Malacca Strait and Sumatra’s energy corridor, fits well into this vision.
5. Job Creation and Regional Development
6. The development of the Andaman gas blocks is expected to generate thousands of jobs, both directly in exploration and drilling and indirectly through supporting industries like logistics, fabrication, and port services. Aceh, a region still rebuilding from decades of conflict and natural disasters, stands to benefit from a new era of energy-led economic activity.
7. Environmental Transition
8. While natural gas is a fossil fuel, it is significantly cleaner than coal or diesel. Using gas from the Andaman block can support Indonesia’s transition away from high-emission fuels, especially in industrial clusters where renewable alternatives are not yet feasible.

Outlook and Challenges Ahead

While the exploration of the Andaman gas supply marks a positive step, the project still faces technical, regulatory, and financial challenges. Offshore drilling in deepwater blocks like Andaman I and II is expensive and complex. It requires significant investment, advanced technology, and risk mitigation planning.

Indonesia’s regulatory framework has improved in recent years with the introduction of the Gross Split PSC scheme and incentives for frontier exploration. However, investors continue to face hurdles related to permitting, land acquisition for onshore facilities, and long project lead times.

To overcome these issues, continuous coordination between the Ministry of Energy, local governments in Aceh, and stakeholders like SKK Migas will be essential. The government’s role in facilitating permitting, infrastructure access, and fiscal support will likely determine the project’s timeline and viability.

For PGN and Mubadala Energy, the next steps involve finalizing feasibility studies, conducting seismic evaluations, and negotiating a gas sales agreement. If all proceeds according to plan, commercial production from the Andaman gas blocks could begin within the next 5–7 years.

Conclusion: A Path Toward Energy Resilience

Indonesia stands at a pivotal moment in its energy history. With declining mature fields and increasing energy needs, the country must unlock new reserves and forge strategic partnerships to secure its future.

The exploration of the Andaman gas supply by PGN and Mubadala Energy reflects this urgency and a shared vision of energy security, sustainability, and economic progress. If successful, the project could be a model for future upstream-downstream collaborations, not only in Indonesia but across Southeast Asia.

As Indonesia continues its journey toward cleaner and more resilient energy systems, unlocking Andaman’s potential could very well be the key to fueling the next chapter of national development.