Posted on 18 Nov 2016
Gas-consuming industries are looking forward to the implementation of lower gas prices for three new sectors starting January and hope more sectors can enjoy similar pricing mechanisms soon after.
The Energy and Mineral Resources Ministry recently announced that the fertilizer, steel and petrochemical sectors would enjoy lower gas prices in January, but details of the new prices have not been disclosed yet.
“Hopefully they can be lower than US$6 per mmbtu [million British thermal units],” IGN Wiratmaja Puja, the oil and gas director general at the ministry, said recently.
Lower prices will be beneficial for the three sectors as gas consumption accounts for up to 70 percent of their total production costs.
Seven other sectors are also expected to soon enjoy similar lower prices, namely pulp and paper, ceramics, glass, food and beverages, tires and latex, oleochemicals, and textiles and footwear.
Gas-related costs amount to between 7 percent and 32 percent of total production costs for these seven sectors.
At present, the gas prices in Indonesia are among the highest in Southeast Asia at $8 to $16 per mmbtu, whereas they hover at $3.50 to $7.50 per mmbtu in neighboring countries, data from the Industry Ministry shows.
Indonesian Iron and Steel Industry Association (IISIA) executive director Hidayat Triseputro said business players hoped to see the plan realized on time after it had been long delayed.
“The sooner the price goes down, the better things will be because it has made it difficult to compete with cheaper imported steel,” he said in a text message.
Upstream iron and steel businesses — which consume more gas than their downstream counterparts — hope to see the new price set below $5 per mmbtu, while the downstream businesses say they want it not to exceed $5 per mmbtu.
The iron and steel sector, which has been facing tough competition against imported steel from China, has seen its productivity fall to 63 percent of capacity.
It claims the high competition has also hampered its performance on the international market, resulting in a trade deficit of $7.2 billion in 2014, according to the IISIA.
The tire and latex sector has also asked for a maximum price of $5 per mmbtu in order to increase competitiveness in the industry, especially for export-oriented tire businesses.
The government has long wanted to reduce gas prices to boost income tax through improved industrial productivity.
The economic benefits of lower gas prices could amount to Rp 32 trillion (US$2.4 billion) if the prices were cut to $4 per mmbtu, with an additional distribution and transmission cost of $1.50 to $2, said Industry Minister Airlangga Hartato.
The Energy and Mineral Resources Ministry has proposed various ways of lowering the prices, including by cutting non-tax and tax revenues from the upstream gas sector that will bring down the prices to around $3.82 per mmbtu, but at the cost of $1.26 billion of state losses per year.
The National Energy Board (DEN) has also submitted several recommendations to the government to help resolve the issues surrounding high gas prices.
DEN member Andang Bachtiar said one of the suggestions was a trade-off between the government and oil and gas contractors that would allow an automatic extension of their production-sharing contracts in exchange for cheaper gas prices in the upstream sector.
The trade-off would most likely only apply to mature fields as they have already obtained profit returns.
