Waiting for Gas Price

The assessment that states that gas prices in Indonesia are higher than in other countries is not a new thing. What is new, this time there is a step from the government to lower the price of industrial gas. The new gas price formula for the industry will be implemented in early 2017. Currently, the gas price is US$9.5 to US$11 per million metric British thermal units.

Then, is it possible to lower gas prices? The gas business is indeed complex, from upstream, namely gas drilling wells, to downstream, namely gas users, both gas user industries and the community. Currently, most of the gas is used for power generation and the fertilizer industry. Gas prices can be reduced upstream.

For example, reducing the state's share in production sharing contracts especially contracts related to the exploitation of wells that have long been producing and profitable. It is very important to look at the distribution costs of the gas distribution company. 

The extent to which the profit margin or trading margin taken is reasonable and not too high an impact on the selling price to the industry. For example, the price of gas from suppliers is US$5.5 per million British thermal units (MMBTU).

However, the selling price to users can reach 8 US dollars to 9 US dollars per MMBTU. Large pipeline investment may not be followed by large gas pipeline utilization so that costs are borne by consumers or gas user industries. For this reason, government regulations are needed to limit the trading margin. 

In certain cases, gas prices are indeed not easy to reduce because of the longer supply chain. For example, delivery of liquefied gas by ship, regasification process, and distribution. However, not being easy does not mean can not be lowered.

There is still a cost component that can be evaluated and reviewed. For example, costs or tariffs for distribution through pipes determined by BPH Migas or other fees that may be collected. Tax incentives, such as tax breaks (tax allowances), can also be a factor that can drive prices down. 

Apart from these costs, investment efficiency in gas distribution networks or pipelines and utilization of distribution pipelines is also important for investors, both state-owned and private companies to pay attention to.

This is one of the reasons the government, through the Ministry of SOEs, established the holding company PT Pertamina and PT Perusahaan Gas Negara (Persero) Tbk. The decline in gas prices is believed to have a major impact on the industry.

Kompas, Page-17, Tuesday, Oct 25, 2016