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The government is revising a regulation that will allow additional price cuts of natural gas for the industry sector, in the next two weeks. The long-awaited ministerial regulation should have become effective in January because it is a supporting regulation of Presidential Regulation (Perpres) No. 40/2016 on natural gas pricing, issued in October. The Perpres itself is part of the government’s third economic stimulus that aims to improve overall industry and investment climate. Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) deputy head Zikrullah acknowledged that there had been difficulties in trying to figure out how to reduce costs in the upstream sector to pave the way for significant gas price cuts. The Energy and Mineral Resources Ministry has already issued a regulation stipulating that if gas prices climb higher than US$6 per million British thermal units (mmbtu), the energy and mineral resources minister can slash the end price by a maximum $2 per mmbtu for certain industries. However, the government is now mulling over lowering the baseline even further to $4 per mmbtu to help spur higher industrial activity, as costs decrease. “We have been asked to review our costs again in detail,” Zikrullah said, adding that SKKMigas had already proposed additional cuts in the upstream gas sector, but the ministry rejected the proposal that it claimed was not significant enough. Despite current deadlock, Zikrullah was optimistic that a solution could be found in the next two weeks. “Our target is to solve this in 10 days,” he said. Indonesia’s gas prices are currently about $9 per mmbtu, higher than in most of its Southeast Asian neighbors. Malaysia, for example, sells it gas at about $5 per mmbtu. The government has been trying to lower gas prices to boost tax income through improved industrial productivity. For every $1 to $2 drop in gas prices, there will be at least Rp 12 trillion ($900 million) in additional income tax and a potential Rp 68 trillion to Rp 123 trillion in extra contributions to the gross domestic product (GDP). The price cut has been deemed essential as industries expect to use more gas in their production in the upcoming decade. The fertilizer and petrochemical industries use the most natural gas, as it is considered an essential component of the end product. The fertilizer industry used 791.22 million standard cubic feet per day (mmscfd) of natural gas by the end of last year and is projected to need around 1,028.22 mmscfd in 2020. On the other hand, the petrochemical industry used 295 mmscfd in 2015 and is expected to increase its usage to 708 mmscfd in 2020. Although those two sectors use the most gas, the government hopes to implement the upcoming price revision to at least 11 industries to boost development in the downstream sector. Currently, only seven industries enjoy the lower gas price, but the government plans to add pulp and paper, food and beverages, socks and the pharmaceutical industry to the list. Oil and gas giant Pertamina executive director Dwi Soetjipto remained tight-lipped about the state-owned firm’s stance on the upcoming revision. However, he said Pertamina would try to increase its efficiency programs to allow the industries to enjoy cheaper gas prices. “We will try to be as efficient as possible in the upstream sector. We are also reviewing our practices, so that we can offer the best prices,” he said. |
