By Boo Kok Chuon

Indonesia’s decision to reduce pipeline gas exports to Singapore has quickly been read through the lens of the recent haze dispute. That interpretation is understandable. The announcement came shortly after Indonesian Energy Minister Bahlil Lahadalia spoke about prioritising domestic gas consumption and warned that Indonesia would take action against countries that did not ‘respect’ it. President Prabowo Subianto had also criticised countries that, in his words, liked to ‘insult’ Indonesia over the haze issue.¹

The timing naturally makes for a good headline.

But there are two rather different questions worth asking before we conclude what this episode really means.

First, from Singapore’s perspective, how exposed are we actually to the reduction?

Second, from Indonesia’s perspective, is this principally a reaction to Singapore, or does it form part of a wider strategy to redirect Indonesian resources towards domestic economic use?

Singapore: Think of the gas supply as a portfolio

Perhaps the easiest way to understand Singapore’s position is through portfolio management.

Singapore has a very concentrated exposure to natural gas as an asset class. Around 95 per cent of our electricity is generated from imported natural gas.² That concentration is real, and it remains one of the structural limitations of our energy system.

But concentration in an asset class is different from concentration in a particular counterparty.

Singapore used to rely predominantly on piped gas from Indonesia and Malaysia. That was a much more concentrated position because a pipeline is geographically fixed. If supply from one end is interrupted, there are limited possibilities for replacing it through the same infrastructure.

The introduction of liquefied natural gas, or LNG, changed that equation. LNG can be shipped in from international suppliers rather than arriving only through fixed pipelines. In 2025, piped natural gas accounted for 43 per cent of Singapore’s gas imports, while LNG accounted for 57 per cent.³

That means an interruption from Indonesia should not be thought of as an interruption to Singapore’s entire gas supply. It is closer to a reduction in one component of a diversified portfolio.

The present cut illustrates the point quite neatly. Indonesia has reduced pipeline exports to Singapore by 31 million standard cubic feet per day. That sounds substantial when described as roughly 9 per cent of Indonesia’s pipeline exports to Singapore. But measured against Singapore’s total gas consumption, EMA says the reduction is less than 2 per cent of Singapore’s daily gas requirements, and is expected to last 18 days.⁴

In portfolio terms, one position has moved against us, but it is nowhere near large enough to determine the performance of the whole portfolio.

A shortfall of that size can, in principle, be met through other supplies. EMA has said that Singapore GasCo is operationally ready to import more LNG, while generation companies are required to maintain fuel reserves and can draw from the Standby LNG Facility if gas supplies are disrupted.⁵

This is why the immediate consequences of the Indonesian reduction are probably quite limited.

The more interesting issue is the longer term.

If Indonesia progressively redirects more of its gas towards domestic consumption, Singapore may have to replace a larger share of relatively convenient pipeline gas with LNG. Technically, Singapore is preparing for exactly that possibility. A second LNG terminal is expected to be ready by 2030 and will increase Singapore’s LNG import capacity by about 50 per cent. Prime Minister Lawrence Wong has said that once it is operational, Singapore will have the capacity to meet all of its natural gas requirements through LNG if necessary.⁶

That does not make LNG economically equivalent to piped gas.

Greater reliance on LNG shifts part of Singapore’s risk from bilateral supply risk to global market risk. LNG cargoes are internationally traded. Their prices respond to demand from other major buyers, production disruptions, shipping costs and geopolitical events affecting important maritime routes.

So Singapore can diversify away from the risk that one neighbouring government turns down a pipeline, but it cannot diversify away from the world.

This is where the portfolio analogy becomes particularly useful. Diversification does not remove risk. It reduces the extent to which one risk can dominate the portfolio.

Indeed, this is increasingly how Singapore itself describes its gas strategy. Singapore GasCo was established to centralise procurement and build a more diversified portfolio across different supply sources, contract durations and pricing indices. Lawrence Wong has expressly compared the approach to managing a financial portfolio.⁷

Seen that way, Indonesia reducing its supply is not so much a failure of Singapore’s energy strategy as one of the scenarios that the diversification strategy was designed to manage.

Our longer-term problem is different. We remain overwhelmingly dependent on natural gas itself. Diversifying Indonesia risk into LNG risk is sensible risk management, but it does not change the fact that approximately 95 per cent of our electricity currently comes from one fuel.

That is why the next stage of diversification has to occur one level higher. Singapore will eventually have to diversify not merely its sources of gas, but its sources of energy.

Indonesia: Retaliation, or resource reallocation?

Indonesia’s side of the equation deserves equally careful treatment.

The immediate political context cannot simply be ignored. The statements about countries that do not ‘respect’ Indonesia, coming at the same time as the haze dispute, inevitably give the gas reduction a diplomatic dimension.⁸

But it would be too convenient to conclude from timing alone that Indonesia suddenly developed a domestic gas policy because it was irritated with Singapore.

The evidence suggests otherwise.

Indonesia has already been increasing the proportion of its gas production used domestically. According to its Ministry of Energy and Mineral Resources, of the 5,600 BBTUD of natural gas produced in 2025, 3,908 BBTUD, or 69 per cent, was used domestically, while 31 per cent was exported. Domestic uses included electricity generation, downstreaming, gas networks, LNG and LPG production.⁹

That direction of travel predates the present dispute.

In April 2026, the Indonesian government was already studying greater domestic use of compressed natural gas as part of a strategy to substitute imported LPG and improve energy self-sufficiency.¹⁰

Then in July, several months before the present Singapore controversy, Indonesia announced that at least 60 per cent of production from the major Masela gas project would be reserved for domestic use, including fertiliser production, electricity generation and downstream industrial activity. Exports would be capped at 40 per cent.¹¹

So there is plainly a longer-running policy behind the latest decision.

From Indonesia’s perspective, the economic question is straightforward: if a unit of gas can either be exported or used domestically, which use generates greater value for Indonesia?

Exporting gas produces foreign exchange and government revenue. There is nothing inherently inferior about that.

But using the same gas domestically could potentially generate a chain of additional economic activity. Gas supplied to a power station may relieve an electricity constraint. Gas supplied to a fertiliser plant becomes an input into another industry. Gas supplied to petrochemical production can support manufacturing further down the value chain.

Instead of exporting the resource itself, Indonesia may seek to export products whose production depended upon that resource.

This is essentially a resource-allocation decision.

If one unit of Indonesian gas earns a certain return when sold to Singapore, but the same unit creates greater economic value when used to generate electricity, manufacture fertiliser or support industrial production within Indonesia, reallocating the gas domestically can be economically rational.

The important word, however, is if.

Domestic use is not automatically more productive simply because it happens domestically. The proper comparison is between the value Indonesia receives from exporting the gas and the additional economic output generated when that gas is redirected internally.

If gas is sold cheaply to inefficient domestic users, the country may merely substitute export revenue for subsidised consumption. If, however, the gas removes a genuine infrastructure bottleneck or supports competitive downstream industries, the productivity gains can be considerably larger.

That distinction is important when assessing Indonesia’s strategy. ‘Downstreaming’ sounds attractive politically, but its economic success ultimately depends on whether downstream industries create enough additional value to justify diverting the underlying resource away from export markets.

In the present case, SKK Migas says the gas is being redirected to meet domestic electricity needs and to safeguard the reliability of domestic gas supplies for power generation.¹²

That explanation is at least consistent with the wider policy Indonesia has been pursuing.

So was Singapore being punished?

Perhaps the most defensible answer is: we do not yet know, and the question may be less binary than the headlines suggest.

The political rhetoric surrounding the announcement makes it entirely possible that bilateral tensions affected its timing or presentation.

But the underlying economic policy of prioritising domestic gas utilisation did not begin with the haze dispute. Indonesia had already been reserving more gas for domestic electricity and industrial use and had articulated that policy months before the present disagreement.

Both things can therefore be true at once.

A government may already have a long-term policy of reducing resource exports, while a diplomatic disagreement accelerates a particular decision within that policy.

What the available evidence does not support is the more sensational proposition that Indonesia suddenly decided to weaponise its natural gas exports against Singapore solely because of the haze dispute. SKK Migas, in explaining the diversion, did not itself link the measure to the political remarks made by Indonesian leaders.¹³

There is a much larger economic story taking place.

Singapore is diversifying its gas portfolio because it knows that foreign suppliers will ultimately act according to their own national interests.

Indonesia, meanwhile, is reconsidering whether exporting natural resources is always the best use of those resources when domestic electricity generation and industrialisation are competing for the same supply.

From Singapore’s perspective, that is a portfolio-management problem.

From Indonesia’s perspective, it is a resource-allocation problem.

And perhaps that is the more useful way to read this episode.

The 31 million cubic feet of gas being redirected each day is relatively small in the context of Singapore’s overall energy requirements. But the decisions being made around it point towards something much larger: Singapore is trying to reduce concentration risk, while Indonesia is trying to increase the domestic economic return generated by its natural resources.

Neither strategy is particularly surprising.

In fact, both may be perfectly rational.

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References

1. The Sun Malaysia, “Indonesia cuts gas exports to Singapore”, 24 October 2026.
2. Energy Market Authority, “Higher Electricity & Town Gas Tariffs for July-September 2026”, 30 June 2026.
3. CNA, “Indonesia reduces gas exports to Singapore in order to ‘safeguard reliability’ of domestic supplies”, 24 October 2026.
4. CNA, “Reduction in Indonesia’s gas supply amounts to less than 2% of Singapore’s total daily demand: EMA”, 24 October 2026.
5. Energy Market Authority, “How is EMA ensuring Singapore has sufficient fuel supply for power generation?”, accessed 25 October 2026.
6. Prime Minister Lawrence Wong, speech at the Energy Market Authority’s 25th Anniversary Gala Dinner, 2026.
7. Prime Minister Lawrence Wong, speech at the Energy Market Authority’s 25th Anniversary Gala Dinner, 2026.
8. The Sun Malaysia, “Indonesia cuts gas exports to Singapore”, 24 October 2026.
9. Indonesia Ministry of Energy and Mineral Resources, “Capaian Positif Tahun 2025, Negara Hadir Penuhi Kebutuhan Energi Masyarakat”, 2026.
10. Indonesia Ministry of Energy and Mineral Resources, “Optimalkan Gas Domestik, Pemerintah Kaji Pemanfaatan CNG Nasional”, 27 April 2026.
11. Indonesia Ministry of Energy and Mineral Resources, “Gas Masela Mengalir, Pemerintah Tetapkan Minimal 60 Persen Gas untuk Domestik”, 17 July 2026.
12. CNA, “Indonesia reduces gas exports to Singapore in order to ‘safeguard reliability’ of domestic supplies”, 24 October 2026.
13. CNA, “Indonesia reduces gas exports to Singapore in order to ‘safeguard reliability’ of domestic supplies”, 24 October 2026.