BPMigas: Export Gas Price 60 Pct Higher than Domestic (Indonesia)

Indonesia’s BPMIGAS said in a report that the average sales price of gas for the international market is 60 percent higher than for the domestic market, resulting in the higher revenue received from exports than from domestic sales.

This, however, has created some multiplier effects, where Cooperation Contract Contractors (KKS Contractors) have become reluctant in developing their gas fields to meet domestic needs, which in turn will threaten the continuity of gas supplies for home industries. This shows that in the long run, cheap gas price could actually put local customers and industries at a disadvantage.

From 2009 to 2011, the average sales price of exported gas distributed from pipelines and liquefied natural gas (LNG) distributed by cargo was recorded at between US$10 per million British thermal unit (MMBTU) and US$11 MMBTU. Meanwhile the average gas price for the home market was only recorded at between US$4 MMBTU and US$4.5 MMBTU during the same period.

“Comparing the disparity between the average sales price of exported gas and the average gas sales price for the domestic market, (we can come to a conclusion) that we have actually given a ‘subsidy’ worth Rp 40 trillion per year for the domestic industries. In other words, the domestic industries have received subsidies worth Rp 120 trillion (in three years) from the cheap gas sales price,” said BPMIGAS Head of Public Relations, Security and Formality Division Gde Pradnyana.

“We can also see that the average sales price of domestic pipelined gas from 2009 to 2011 is actually some 40 percent to 50 percent from the (average) sales price or exported gas. The sales price for PGN (Perusahaan Gas Negara) is even lower than the average national price,” he added.

According to Gde, the gas supplied to PGN from ConocoPhillips Indonesia (COPI) is currently priced only at US$1.8 MMBTU, which is much lower that the average national sales price of US$5.17 MMBTU. The average sales price for exported gas in 2011, on the other hand, is ranged at between US$13 MMBTU and US$14 MMBTU, while that of LNG is only at between US$12 MMBTU and US$13 MMBTU.

“So, gas sales (price) for the domestic market is actually much cheaper compared with international gas price. From our calculation, we ‘subsidize’ domestic gas price around Rp 40 trillion per year in average,” Gde said.

All revenues received from gas and oil sales go into the State Budget for later to be used for the country, including for infrastructure development and subsidies for education, fuels, electricity and so on.

LNG Contract for Fujian

In relation to the Tangguh LNG Plant, Gde explained the project did not cause any loss to the country. According to him, when the Tangguh Plant was at its early development, the situation was buyer’s market, a situation in which the buyer decides the price offered by the LNG seller. Indonesia already got the best price for LNG export to Fujian province in China, because the contract was secured without having to be participated in a tender. Before securing the Fujian contract, Indonesia had lost in LNG tenders for Guangdong and Taiwan following the high prices it offered at that time.

“The calculation for oil and gas field development, basically, is based on the investment poured into the development. At that time, the LNG sales price was surely cheaper than today, because the costs for plant construction, gas well development and so on were also cheaper from today. If we calculate the value of LNG plant construction projects today, the Tangguh LNG Plant Train-1 and Train-2 are surely the cheapest plants in the world,” Gde said.

Besides, he said further, the sales price of exported gas that had been considered cheap all this time turned out to be more expensive than the domestic gas price. Therefore, Gde added, Indonesia needs to raise its domestic gas price to ensure the continuity of investment and to support the availability of gas supplies in the domestic market.

“If the price disparity is too high, we do not only generate lower state revenue than expected, but investors will also refuse to develop their fields because their gas productions are priced too cheap. Or, even if (they agree to) develop their fields, they would ask for incentives,” he said.

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LNG World News Staff, February 8, 2012; Image: BPMigas