Bridging the Macro-Micro Gap in Energy Transition: The Role of a National Gas Integrator in Decarbonizing Indonesia’s Nickel Smelting Industry

Indonesia’s aggressive mineral downstreaming policy has successfully established the country as a global nickel powerhouse, yet this industrial expansion faces a critical paradox: the processing of transition metals relies heavily on carbon-intensive, off-grid captive coal-fired power plants. Under impending international climate trade barriers, including carbon-border measures such as carbon-border measures such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), although nickel itself is not currently among the CBAM-covered sectors, Indonesia’s high-carbon nickel exports face severe financial penalties and risk market exclusion. This paper evaluates natural gas, specifically Liquefied Natural Gas (LNG) delivered via maritime virtual pipelines, as a vital transitional fuel to decarbonize remote smelting hubs in Central Sulawesi and North Maluku. Using an integrated macro-microeconomic modelling framework, this study quantifies the economic feasibility thresholds of fuel switching at the plant level and designs an optimal institutional architecture to overcome current midstream logistical market failures. Microeconomic simulations demonstrate that under standard market conditions, natural gas is financially unviable due to a low domestic coal price cap ($90/ton under the Domestic Market Obligation), yielding an unadjusted Gas Parity Price (GPP) threshold of $7.36/MMBTU against fragmented LNG delivery costs exceeding $12.00/MMBTU. However, when global carbon taxes ($85/ton CO₂) and product green premiums (7.5%) are internalized as shadow prices, the maximum allowable delivered gas price expands significantly to $16.34/MMBTU. To bridge this macro-micro gap and compress the high logistical costs of archipelagic supply chains, this paper proposes the establishment of a centralized National Gas Integrator. By simulating a Weighted Average Cost of Gas (WACOG) price pooling model that aggregates regional industrial demand and cross-subsidizes remote infrastructure with mature domestic pipeline gas, the Integrator can reliably deliver LNG to remote industrial clusters at a socialized tariff of $10.75/MMBTU. This centralized institutional mechanism eliminates structural Take-or-Pay contractual deadlocks and successfully aligns national resource optimization with industrial decarbonization, securing the long-term global competitiveness of Indonesia’s green commodity supply chain without relying on direct state fiscal subsidies.

Industrial Downstreaming, Captive Coal, Virtual Pipeline LNG, Gas Integrator, Price Pooling (WACOG), Carbon Border Measures, Indonesia.

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