In line with economic development and population growth, Indonesian energy demand has been increasing. In the past 10 years, growth of demand is around 5% per annum, on average. Indonesian energy demand is supplied primarily by oil (47%). As domestic oil resource is no longer sufficient to supply domestic demand, Indonesia energy policy objective is to move away from oil by promoting utilization of more abundantly available energy resources such as natural gas. Java Island is nation's energy demand center meanwhile Indonesian natural gas resources are located in many regions outside Java Island.

Connecting natural gas fields to the demand centers in Java would require massive investment to build gas transport and distribution infrastructure. Therefore, alternative ways of converting gas into denser energy carrier and transporting the energy using non-pipeline facilities (ships, trucks) to transport the gas to customers need to be developed. LNG and CNG are usually appropriate for large natural gas reserves and they have been developed in Indonesia. In the other hand, Indonesia still has many untapped small-medium size gas reserves. Small-medium size gas reserve (0.5-1 Tcf) is sufficient to support dimethyl ether (DME) development which could be another option for converting natural gas. DME has similar properties with LPG so it can substitute LPG. It can also substitute diesel oil used in trucks and buses. Demand for these fuels will continue to increase in the future.

This paper presents the feasibility of DME development which is assessed using wellhead netback price of gas as feasibility indicator. The netback price is calculated using the price of fuels to be substituted by the gas (in this case: LPG) as references. The basic question of this study is what is the minimum gas price at wellhead that satisfy DME project investor's economic criteria when the gas is converted to DME and the DME is to substitute LPG consumption. The minimum acceptable rate of return (MARR) as economic criteria is set at 16%.

In addition to feasibility analysis, this study also evaluates Indonesian regulatory readiness for DME development and benefits that could be gained by Indonesia as well as its risk for the implementation.

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