A lower gas price should not hinder upstream oil and gas investment

The government have decided to lower the gas price for national industries to US$ 6 per million british thermal unit (MMBTU) starting on April 1st, 2020 and have stated that a lower gas price is required to strengthen the competitiveness of domestic industries and ultimately to boost overall economic growth. The government has also promised that the policy will not affect the oil and gas contractors' share as the Government will cut their own share.

The founder of ReforMiner Institute, Pri Agung Rakhmanto, said that the policy will not affect the contractors' share in order to give additional certainty in the oil and gas investment climate. However, he acknowledges that there might be an adjustment that will affect the contractors in terms of its implementation. “There will be some inconvenience for the contractors of course. But it should not be a reason that threatens oil and gas investment,” he said.

Pri Agung added that the investment climate should not be impacted as long as the new policy does not make the contractors' share lower.

Nevertheless, he recommends that the government must have a more comprehensive study basis in providing a cheaper gas price for industries in the long term. For example, boosting the development of gas infrastructure, such as receiving terminals, transmission pipelines and distribution pipelines. Thus, Indonesia will have a better interconnection and flexibility regarding gas supply and demand. “The interconnection and flexibility will make the country's gas price more competitive in the long run,” said Pri Agung.

The Energy and Mineral Resource Minister, Arifin Tasrif, explained that the policy of a lower gas price by cutting down the government' share is not the only strategy to ensure that the national gas industry becomes competitive. The Government of Indonesia will also continue to increase its gas production by developing new projects such as the Sakakemang Field, in South Sumatera Province, as well as to continue gas infrastructure development such as gas pipeline interconnection from Aceh to East Java, Sulawesi, and Kalimantan. “But we need around two to three years to develop this infrastructure,” said the Minister.

According to the data from SKK Migas, industries are the biggest domestic gas consumers. In 2019, the industry consumed around 1,600 Billion British Thermal Unit per day (BBTUD) out of total national gas lifting which was around 6,066.47 BBTUD. This does not include the fertilizer industry's consumption which was around 748 BBTUD.

Minister of Industry, Agus Gumiwang Kartasasmita, on a separate occasion, added that the industry's demand for gas will ramp up to 2,800 million standard cubic feet per day (mmscfd) within this year. It will reach as high as 3,600 mmscfd in 2024. As President Joko Widodo has mandated, Minister Agus will monitor the industries to get a better performance after receiving a cheaper gas supply. “Ultimately, our industries will create more added value, more investment and more employment for the country,” he stated. (*)

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Posted by Niza Upperline