The lndustry Ministry has high hopes that gas prices for the industrial sector will be calculated based on commodity value rather than the often-used crude oil price.
Industry Minister Airlangga Hartarto said that he had asked the Energy and Mineral Resources Ministry to use such a calculation to help cut down prices in the downstream sector.
“We want to develop a gas based industry, however, we have a lot to work on, especially since the Energy and Mineral Resources [Ministry] tends to focus too much on global oil prices when setting the gas prices. We want it to be commodity-based,” he said recently.
President Joko “Jokowi” Widodo ordered his Cabinet to cut enduser gas prices to below US$ 6 per million British thermal units (mmbtu) in seven industrial sectors to develop the downstream sector and create a significant multiplier effect in the economy. However, only state-owned petrochemical, fertilizer and steel industries were privy to the price cut that started on Jan. 1, following the issuance of a ministerial decree from the Energy and Mineral Resources Ministry late last year.
The gas prices in four different industries - oleo chemical, glass, ceramics and rubber gloves remains in limbo, as the ministerial decree only allows gas price cuts for state-owned companies in the petrochemical, fertilizer and steel industries. The Industiy Ministry revealed earlier this year that 86 firms from the petrochemical, fertilizer, steel, glass and ceramics sectors were being evaluated
to see whether they could receive gas supplies at a low cost.
Of the 86 firms, eight are from the petrochemical, steel and fertilizer sectors, while the remaining 78 are from the ceramics and glass sectors. At around $ 9 per mmbtu at its plant gate, Indonesia’s gas price is considered much higher than most ofits Southeast Asian neighbors. Gas in Malaysia and Singapore is said to hover at around $ 4 per mmbtu.
The Energy and Mineral Resources Ministry identified the midstream sector as the source of high gas prices at the plant gate. However, even by cutting down costs in the midstream, it may be difficult to set a price that suits both the upstream gas producers and the downstream providers.
“Gas prices really depend on several things, including location and the gas source itself. So not all cases are apples to apples,” Energy and Mineral Resources deputy minister Arcandra Tahar said. The lack of agreement on how to calculate gas prices has spurred hesitation from investors who are interested in developing industries near the planned Masela gas block in Maluku, Airlangga said.
The potential investors, which include state-owned firm PT Pupuk Indonesia, PT Kaltim Methanol Industry and PT Elsoro Multi Pratama, have asked for a gas price of $3 per mmbtu. ReforMiner Institute founder Pri Agung Rakhmanto said that the easiest way to cut down on gas prices would be by decreasing state revenues from the upstream sector and also by cutting down the toll fee in the midstream.
However, Wood Mackenzie senior analyst for gas and power, Edi Saputra, was not so sure about the Industry Ministry’s suggestion to align gas prices with the end-product, arguing it would expose the gas industry to complicated risks.
“Gas, like oil, is a commodity on its own and has its own fundamental supply and demand dynamics,” he said.
Jakarta Post, Page-14, Saturday, Sept 30, 2017
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