Energy Ministry Still Searching for Formula to Bring Down Gas Price

Groundbreaking of Grissik-Pupuk Sriwijaya gas pipeline (photo by : ESDM)

JAKARTA (TheInsiderStories) – Deputy Minister for Energy and Mineral Resources Arcandra Tahar says the Energy Ministry is still searching for the correct formula to bring down the price of the natural gas sold to industry players to a level acceptable for buyers – but at the same time a price point that will not put producers in a disadvantageous position.

“The Energy and Mineral Resources Ministry is trying to bring down the gas price in the upstream sector. However, if it is set too low, that would kill the gas producers. So, we have to find the right balance,” Arcandra Tahar explained at a seminar on Gas-LNG Infrastructure seminar today (21/11) in Jakarta,

He said one of the efforts being undertaken by the Ministry is to tear down the current inefficient gas cost structure, and instead pinpoint cost areas that the government can eliminate.

At the moment, industries purchase gas at around $11 per million British Thermal Units (mmbtu), far higher than the revised gas price they propose: below $6 per mmbtu.

Recently, some industry players, such as fertilizer, ceramic and petrochemical companies, called on the government to depress the gas price to around $3 per mmbtu, in line with the prevailing global market price. However, Arcandra Tahar said such a demand is ‘unreasonable’ as it could potentially put producers at a loss.

He said one way to bring down gas price is by reducing government revenues, in areas of non-tax and tax revenues from upstream oil and gas companies.

“However, this issue (tax cut) is the responsibility of the Finance Ministry,” he said, adding that the Energy Ministry is still in talks with the Finance Ministry on this matter.

Industry players said that the government needs to carefully consider all aspects before slashing the gas price.

“The gas price is determined by an aggregate of cost of production and distribution costs; therefore, when cutting the gas price the government needs a comprehensive policy that could benefit all parties,” said Danny Pradtya, Commercial Director of gas distributor PT Perusahaan Gas Negara Tbk (IDX:PGAS).

Satya Widya Yudha, member of the House of Representatives, told TheInsiderStories that that the Energy Ministry is constrained in reducing the gas price, as it only focuses on trying to reduce costs in the upstream sector. Specifically, it is yet to touch on the midstream, namely the distribution part.

“The Energy Ministry must also try to reduce costs in the midstream sector,” he said.

Written by Roffie Kurniawan, email: roffien@theinsiderstories.com