Insights into Small-Scale LNG Supply Chains for Cost-Efficient Power Generation in Indonesia

This study demonstrates that small-scale liquefied natural gas (SS LNG) is a viable and cost-effective alternative to High-Speed Diesel (HSD) for power generation in remote areas of Indonesia. An integrated supply chain model is developed to optimize total costs based on LNG inventory levels. The model minimizes transportation costs from supply depots to demand points and handling costs at receiving terminals, which utilize Floating Storage Regasification Units (FSRUs). LNG distribution is optimized using a Multi-Depot Capacitated Vehicle Routing Problem (MDCVRP), formulated as a Mixed Integer Linear Programming (MILP) problem to reduce fuel consumption, CO2 emissions, and vessel rental expenses. The novelty of this research lies in its integrated cost optimization, combining transportation and handling within a model specifically adapted to Indonesia’s complex geography and infrastructure. The simulation involves four LNG plant supply nodes and 50 demand locations, serving a total demand of 15,528 m3/day across four clusters. The analysis estimates a total investment of USD 685.3 million, with a plant-gate LNG price of 10.35 to 11.28 USD/MMBTU at a 10 percent discount rate, representing a 55 to 60 percent cost reduction compared to HSD. These findings support the strategic deployment of SS LNG to expand affordable electricity access in remote and underserved regions.