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Domestic gas supply scarce despite huge reserves

Article 33 of the 1945 Constitution clearly mentions that the state controls natural resources and they should be used optimally for people’s welfare

Satya W. Yudha (The Jakarta Post)
Jakarta
Tue, February 22, 2011

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Domestic gas supply scarce despite huge reserves

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rticle 33 of the 1945 Constitution clearly mentions that the state controls natural resources and they should be used optimally for people’s welfare.

This rich country has abundant natural resources, including oil and gas, which spreads from the western to eastern tips of the land. Ironically, the Indonesian people have yet to enjoy the wealth in equal portion.

The policy to accelerate gas development in Indonesia will not easily materialize as it will need a breakthrough and strong political will.

Certainly, this is in line with the increasing consumption of gas energy both in international and in domestic markets.

As a country endowed with huge natural gas resources, Indonesia should have served as a good host for the gas industry, both users and producers.

The 2011 Indogas Business Forum held from Jan. 24-27 at least left an important message in the efforts to develop natural gas in the country. The forum, attended by stakeholders in the gas industry, triggered the Indonesian gas industry to engage in critical thought to increase its competitiveness in the global market.

One thing that should be underlined is the regulation in the gas sector, which has been considered “unfriendly” to investors. Issues such as oil and gas income tax, the determination of domestic market obligation (DMO) as well as cost recovery have caused anxiety among the gas industries.

If the regulation cannot be used as a legal umbrella for investors, there will be no conducive and favorable climate for investment. In this case, the government must be more responsive by imposing a fair and balanced rule of the game.

It is not easy for investors to maximize oil and gas development in Indonesia. High-cost development and a costly advanced technology application have been the main reasons for the investors’ reluctance to develop oil and gas wells.

It sounds like a classic argument, which always arises but it also carries a strong message. To shift oil and gas fields from the western part of Indonesia to the new area in the frontier part of the east without adequate infrastructure would be a different problem.

Investors have their own business calculation: The margin between production price and selling price would not be too large.

The fact is that the domestic gas price remains too low. This has been deemed an obstacle for investors to explore national oil and gas fields maximally as they have the obligation to supply the domestic market. Gas industry players, especially those operating in difficult areas, lack the enthusiasm to develop their fields because they only offer less profit. Such a problem has always been voiced by Commission VII of the House of Representatives in its hearing with the government.

The new vision of self-sufficiency in the national energy sector should at least be implemented seriously to design a fair regulation that helps create a competitive gas industry.

We have two paradigms in place so far, first when former vice president Jusuf Kalla said that industry should follow the energy source, and second, when current Vice President Boediono said that energy development would not merely focus on revenue but more importantly on economic growth. Both paradigms must be seen as new pillars for the integrated development of national energy sustainability.

To reach the target of energy independency, Commission VII has encouraged integrated efforts to materialize three key factors: Assurance of national gas supply, adequate infrastructure and national policy to set a competitive domestic gas price. National gas supply will need a more concrete, firm and clear policy, as well as a technical regulation from the government to assure huge investment.

In terms of policy, the government must actively encourage the development of industries around gas resources (industry follows the energy concept). Thus, the cost production for gas consumer industries will be more efficient and optimal. Industrial areas in the future will go to the eastern part of Indonesia.

What investors expect more is supply assurance and adequate infrastructure. As we all know, domestic gas supply remains low despite the huge national gas production. Exploration that is not followed
by favorable selling prices has become the main hindrance beside poor infrastructure.

If the problems of gas supply and infrastructure remain unaddressed, it will negatively impact on efforts to shape a maximum consumption pattern of energy. Investors has demanded the government immediately finish the construction of integrated terminals for LNG storage (floating storage and a regasification unit) and a pipeline network to help distribute gas optimally.

Furthermore, we wait for the government’s concrete action to create a conducive investment climate in the gas sector. We therefore urge the government to immediately issue a pricing policy for domestic consumption.

We must admit that in terms of gas pricing, the government has yet to provide a solution that satisfies gas investors. While domestic need has increased due to declining supply of fuel oil and huge subsidy for energy, it is time for the domestic industry to leave the comfort zone of cheap gas prices and begin seeking gas supplies that are more expensive but are still more competitive compared to fuel oil.

The House has continuously asked the government to set a domestic gas pricing formula by involving business operators so as to reach its economic value. If the government solves this pricing issue, then the huge domestic-need potentials will become effective demand.

Basically, it would need huge investment and expertise from the gas industry to answer the challenges. The government’s role in policy is also needed to support the development of the national gas industry.

Finally,  there are only two options left. We may be proud of our huge gas reserves but let them remain unexploited because of a high-cost economy. Or else we commercialize gas reserves effectively for the domestic need by evaluating the domestic price.



The writer is a member of the House of Representatives’ Commission VII on energy from the Golkar Party.

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