Gas, Indonesia’s Chance to Meet It’s Energy Demand and Boost Up Its Industry

As its oil production continues to plummet, gas has become an opportunity for Indonesia to meet its energy demand. Therefore, gas is no longer being treated as a  source of revenue for Indonesia, but as a key driver of its economy and industrial growth.

Data from The Upstream Oil and Gas Special Task Force (SKK Migas) shows a plateau in Indonesia’s domestic gas consumption, from 53% of its gas lifting in 2013 to 66% last year. The industry sector is the biggest consumer of Indonesia’s gas lifting with its consumption reaching 38,71% of its gas lifting.

Even so, many industries in Indonesia have concerns regarding the gas price, and have even claimed that it is much more expensive than other countries. Now, at the beginning of 2020, President Joko Widodo has expressed his frustration over the gas price polemic in that it’s not going down even though he signed Presidential Regulations No.40/2016 on gas price policy since his first term in office.

The Head of SKK Migas Dwi Soetjipto explained that Indonesia’s gas price at the well head is competitive enough at around US$ 5.4 per MMbtu. However, he admitted that the gas price might be different in some blocks depending on the block’s economic value. He also mentioned that the end user may buy gas at a higher price than its well head price, because not all of the consumers has a direct transaction with the gas producer.

“The gas reaches the industry in many ways. If the industry bought gas directly from the gas producer, its price might be only around US$ 6-7 per MMbtu. But if the industry bought it from a trader, its price can reach US$ 8-9 per MMbtu. So it would be better if we break it [the gas price structure] down,” he said.

Even so, Dwi said that SKK Migas will analyze some blocks that have a higher economic scale. He will consult with government regarding tax incentives or other kinds of incentives for gas producers so that they can lower their gas price.

Pri Agung Rakhmanto, an energy expert, said that Indonesia’s upstream gas price at US$ 5-5.5 per MMbtu is very competitive compared to other ASEAN countries. As examples, the gas price in Malaysia and Myanmar are around US$ 4-5 per MMbtu and in the Philippines and Singapore are around US$ 5.5-6 per MMbtu.

“Of course, there are some cases where the gas price at the well head is higher than US$ 7 or 8 per MMbtu because the complexity and development risk in each field is different. But it can’t be generalized,” he stated.

Therefore, he thought that the Government’s policy to cut down its split of revenue from gas sales in order to lower the gas price is right. “It is one aspect of the Government’s support to both the upstream and downstream industry. In the downstream sector, the gas price will be lower. While in the upstream sector, the gas producer’s economic scale is maintained in order to be competitive enough,” Pri Agung said.

Moreover, SKK Migas have stated that gas production has decreased since 2002. Hence, the upstream oil and gas sector needs Government support to maintain gas production in order to meet the national demand, because Indonesia still has gas reserves of 102.9 TCF and 73 basins that are needed to be explored.