Tuesday, July 16, 2024

Govt asked to impose LNG special pricing amid industrial gas supply deficit

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Audina Nur




The Indonesia Gas Society (IGS) has asked the government to consider implementing special pricing for liquefied natural gas (LNG) as an alternative to address the current deficit in pipeline gas supply.

“The government could introduce subsidies or fiscal incentives to encourage the use of LNG as an alternative for industries facing a gas supply deficit,” Chairman of IGS, Aris Mulya Azof, told a discussion on Tuesday, May 7, 2024.

He said that special pricing incentives for LNG would provide economic certainty for gas providers, both in terms of infrastructure investment and future LNG provision. He also emphasized the need for significant investment in LNG storage and distribution infrastructure to make LNG access and adoption more affordable for industrial users.

“One key aspect to encourage LNG utilization as a mitigation measure for declining domestic supply is the economic certainty for suppliers, both in terms of infrastructure investment and LNG provision,” Aris said.

As previously reported, the Upstream Oil and Gas Regulatory Task Force (SKK Migas) has prepared two additional LNG cargoes for PT Perusahaan Gas Negara (PGN). These LNG cargoes will be sourced from the Tangguh Plant, Bintuni Bay, West Papua.

Hudi Suryodipuro, Head of Program and Communication Division at SKK Migas, said that PGN has plans to procure two LNG cargoes in the third quarter of this year.

“Regarding the price [contract], we are still awaiting offers from PGN, which will then be discussed with sellers and SKK Migas,” Hudi said on April 18, 2024.

He cited that LNG price could be based on a formula referencing the Indonesian crude oil price. He also said that additional LNG cargoes are needed to fill the gas supply deficit from several fields in Central Sumatra, South Sumatra, and Western Java regions. Some fields experiencing reduced gas flow include the Corridor Block, PEP South Sumatra (Regional 1), PEP West Java (Regional 2), PHE Jambi Merang, and several contractors operating in those areas.

Gas production decline is attributed to various upstream conditions, ranging from natural well production decline to well maintenance and repairs, both scheduled and unscheduled.

Minister of Energy and Mineral Resources (ESDM) Arifin Tasrif acknowledged the gas supply deficit in the western region. The government is therefore pushing for accelerated gas pipeline infrastructure development to divert excess gas supply from East Java to the western part of Indonesia.

“Yes, indeed there is a supply deficit from the west, so we are accelerating the pipelines, but it takes time,” Arifin said on March 8, 2024.

Therefore, the most feasible alternative currently to address the gas supply deficit for industries in the western region is to utilize LNG. However, it should be understood that the price of LNG-sourced gas will be higher compared to pipeline gas, primarily due to LNG’s longer business chain to reach customers, including cooling, transportation, storage, and regasification.

“Yes, it’s challenging [for LNG prices to be competitive with pipeline gas prices]. With gas, it needs to be liquefied, transported, there are costs involved. But we have to consider energy security,” Arifin said.

Audina Nur






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