Indonesia is taking a bold step in its energy transition with a new initiative centred on coal-to-DME substitution. Bahlil Lahadalia, the country’s Minister of Energy and Mineral Resources, announced that the government is preparing a large-scale project to convert domestic coal into dimethyl ether (DME) as a substitute for imported liquefied petroleum gas (LPG). This move reflects both economic and strategic considerations: reducing the heavy import burden of LPG and leveraging Indonesia’s abundant coal resources for downstream processing.

The significance of this strategy cannot be overstated. Indonesia currently consumes around 8.5 million tonnes of LPG per year, while domestic production is only about 1.3 million tonnes. That leaves an import gap of approximately 6.5-7 million tonnes annually, a substantial drain on foreign exchange and a source of vulnerability to global supply disruptions. By targeting coal-to-DME substitution, Indonesia aims to build up a domestic alternative, reduce reliance on imports, and enhance energy security.

In this article, we explore how the coal-to-DME substitution initiative works, what challenges lie ahead, how it fits into Indonesia’s broader energy policy context, and what implications it may have for industry and society.

Understanding the Coal-to-DME Substitution Project

The term coal-to-DME substitution refers to a process of converting coal (typically low-rank or sub-bituminous coal) or other feedstocks into dimethyl ether (DME), a clean-burning fuel with chemical and physical properties similar to LPG. According to the government and independent analyses, DME has several advantages: it can utilise existing LPG infrastructure (such as cylinders, storage, and piping), it burns cleaner with lower emissions, and it can be produced domestically.

The government has identified 18 downstream (“hilirisasi”) projects, one of which is the coal-to-DME programme. The aim is to transition from heavy dependence on imported LPG to a home-grown DME supply built from Indonesia’s coal resources.

From a technical perspective, DME’s calorific value is lower than LPG (7,749 kcal/kg for DME vs. 12,076 kcal/kg for LPG) but because DME has a higher mass-density, the energy ratio amounts approximately to 1:1.6 between DME and LPG. That means in practical terms, a shift to DME will require adjustments in fuel standards and appliance optimisation, but the infrastructure switch can be relatively smooth because compatibility is high.

There is also a climate benefit: DME is reported to degrade more easily in the atmosphere without harming the ozone layer, and it can reduce greenhouse-gas emissions compared to LPG. This aligns with Indonesia’s climate commitments and the global push for cleaner energy.

Why Indonesia Needs Coal-to-DME Substitution for Energy Security

There are several compelling reasons why Indonesia is pursuing coal-to-DME substitution as part of its energy strategy.

Reducing LPG Import Dependency

Indonesia currently imports roughly 6.5 to 7 million tonnes of LPG annually. This level of import dependence exposes the country to global market fluctuations in price and supply chain risk. By creating a domestic alternative via DME, Indonesia can reduce its exposure and retain value chain benefits at home.

Reducing reliance on imports also helps preserve foreign exchange reserves, strengthen trade balances, and provide more predictable pricing for domestic consumers. A domestically produced DME supply gives greater control and resilience, essential for achieving long-term energy sovereignty.

Leveraging Domestic Coal Resources

Indonesia is richly endowed with coal, and building downstream value in coal resources through hilirisasi fits the government’s industrialisation agenda. Converting coal into higher-value products such as DME rather than simply exporting raw coal means more job creation, greater value capture within the national economy, and less waste from raw extraction.

By deploying coal-to-DME substitution, Indonesia is tapping into an under-utilised pathway: using coal as feedstock for advanced fuels rather than just power generation. This expands the role of coal into cleaner segments of the energy economy.

Supporting Clean Energy Transition

Although coal is often associated with high carbon emissions, using it as a feedstock for DME and clean cooking fuels represents a transitional strategy. DME’s cleaner combustion profile (lower particulate matter, NOx, and sulfur) and its potential for greenhouse-gas emissions reduction make it a viable bridge fuel as Indonesia moves toward cleaner energy systems. For millions of households currently using LPG, switching to DME can be a practical upgrade in emissions, efficiency, and cost.

Strengthening Infrastructure Efficiency

Because DME can utilise much of the existing LPG infrastructure, the coal-to-DME substitution pathway offers infrastructure savings. Existing cylinders and storage can be repurposed, lowering the burden of building entirely new delivery systems. This means faster rollout, lower capital expenditure, and quicker benefit realisation for households.

Key Challenges to Realising the Coal-to-DME Substitution Vision

Despite the promise, several hurdles must be addressed for the coal-to-DME substitution project to succeed.

Economic Viability and Investment Costs

One of the largest obstacles is the upfront investment and operational cost of DME production. Current feasibility studies show DME production costs at around US$911–US$987 per tonne, compared to the government’s reference value of US$617 per tonne. This is significantly higher than the import cost of LPG, recorded at around US$435 per tonne in 2024. If the cost remains higher without subsidies or scale efficiencies, it could mean higher subsidies or cost burdens for the government and consumers.

Moreover, attracting investor appetite has been challenging — some previous efforts were stalled due to economic reasons. Making the project bankable and competitive is a critical step.

Technology Selection and Feedstock Efficiency

Selecting the right technology for converting coal to DME is essential. Indonesia is considering Chinese or European technologies, evaluating efficiency, emissions control, and conversion rates. Ensuring the feedstock quality, conversion efficiency, and cost competitiveness are crucial to maintaining the economic and environmental case for coal-to-DME substitution.

Regulatory and Policy Support

For coal-to-DME substitution to succeed, clear regulatory frameworks for production, subsidies, feedstock sourcing, safety standards, appliance conversion, and consumer rollout must be established. The transition from LPG to DME at scale will require coordination across ministries, distribution networks, and consumer education. Without strong alignment, rollout could be delayed or fragmented.

Consumer Acceptance and Appliance Compatibility

Household acceptance is another challenge. Although DME is compatible with many LPG systems, some adjustments and consumer education may be needed — explaining the benefits, safety, cost implications, and ensuring effective transition. Pilot tests in Jakarta and Palembang have shown promising results in terms of usability, but scaling remains a major task.

The Roadmap and Implications of Coal-to-DME Substitution

The government aims to accelerate the coal-to-DME substitution project. The pre-feasibility study for 18 downstream projects is reportedly complete, with DME among the top priorities. Targeting commercial production by 2026–2027, the project aligns with Indonesia’s broader energy transition and industrial strategy.

Implications for Industry and Stakeholders

For the mining sector, this shift signals a move from raw coal extraction to value-added processing. Coal mining companies such as PT Bukit Asam Tbk are exploring DME projects with international technology partners. For equipment manufacturers, chemical engineers, logistics operators, and distribution networks, this offers new business opportunities.

For households, successful substitution could mean more stable fuel supply, less dependence on imports, potential cost savings if scale is achieved, and a lower environmental footprint. For the government, it represents energy sovereignty, job creation, and industrial transformation.

Monitoring and Ensuring Success

The success of coal-to-DME substitution will depend on monitoring key indicators: project capital expenditure versus budget, cost per tonne of DME, consumer price parity with LPG, household adoption rates, emissions reduction, and supply chain robustness. Subsidies or incentives must be designed to make DME cost-competitive while ensuring production scales up to drive down unit costs.

Continued stakeholder engagement — from mining companies and technology providers to regulators and distribution channels — is crucial. Policies should anticipate bottlenecks such as feedstock quality, technology performance, environmental compliance, and appliance conversion logistics.

Conclusion

Indonesia’s drive for coal-to-DME substitution reflects a bold blend of industrial strategy, energy sovereignty, and environmental ambition. By converting domestic coal into DME as a substitute for imported LPG, the nation aims to unlock value, reduce import vulnerability, enhance energy security, and transition toward cleaner domestic fuels.

While the vision is promising, significant hurdles remain: economic viability, technology selection, regulatory clarity, and consumer readiness will determine whether the substitution becomes reality. With the right policy support, industrial partnerships, and investment, coal-to-DME substitution could mark a pivotal milestone for Indonesia’s energy future.

For stakeholders — from mining firms to policymakers — the coming years will be critical. The goal: ensuring that the fuel powering Indonesian kitchens tomorrow is not just affordable and reliable but also a symbol of national self-reliance.