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Natural gas supply to see 23.3 percent deficit this year
Natural gas supply and demand in 2010 will see a deficit of 23
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atural gas supply and demand in 2010 will see a deficit of 23.3 percent based on demand specified in contracts and commitments combined in relation to available supply. The shortage equals to 2,554 million standard cubic feet per day (mmscfd), an official says.
Evita Legowo, the Energy and Mineral Resources Ministry’s director general for oil and gas, told reporters Tuesday that the deficit was caused by the decline in output from older gas fields along with delays in the production of newer ones.
If such conditions persist, she said, the annual production output would constantly be in deficit in terms of the demand specified by contracts plus commitments.
Evita said by 2020 the annual gas supply deficit would be 3,891 mmscfd, escalating to 4,715 mmscfd by the end of 2025.
The inability to increase gas production has impacted negatively on the economy as manufacturing firms face constant gas shortages.
Competition to access gas has heightened as state electricity company PT PLN is switching from oil-fired to gas-fired power stations to reduce the government’s spending on subsidized fuels as well as to avoid expensive imports of fuel oil.
The problems of managing dwindling gas supply are made more complex by the competition between obligations to meet domestic demand and the desire to make bigger profits by exporting abroad, which gives better pricing to producers.
The structure of demand for Indonesian gas was previously dominated by the foreign market.
This domination has been gradually decreasing since at least 2003 when exports absorbed 58.5 percent of a total production of 8,642.2 mmscfd. By 2008, production output fell to 8,120.4 mmscfd, of which 52.7 percent was for the export market.
The drop in the proportion of production going to exports reflects the government bowing to pressure from domestic buyers.
In January, the ministry issued a decree requiring producers of coal and other minerals to allocate a proportion of their annual production output to the domestic market, or face sanctions. The decree states that the proportion for the annual domestic market obligation (DMO) will be equal to the estimate of annual demand proposed by potential domestic buyers one year earlier.
Energy expert Kurtubi told The Jakarta Post that a short-term easing of the supply constraints could be obtained by renegotiating sales contracts that generated losses if compared to current natural gas prices in the global market.
“The government has a 25 year contract with China with a pricing deal of US$3 per mmbtu [millions of British Thermal Units],” he said. Gas sales contract prices are normally referenced to oil prices, and currently are at more than US$6 per mmbtu.
Kurtubi said if China refused to renegotiate, it would be more beneficial for the government to pay a penalty and sell the gas to the highest bidder.
As a longer term solution, Kurtubi suggested that the government amend the existing oil and gas law to make it easier for companies to invest. The amendment should include abolishing taxes during the investment period until operated fields started to yield output.
