Legislators propose benchmark gas price

Several lawmakers at the House of Representatives (DPR) Commission VII overseeing energy, have suggested that the government create a formula to determine a national benchmark for gas pricing to enable better prediction of revenues from natural gas sales.

“It’s better for the government to create a gas price formula like what we have in crude oil through the Indonesian Crude Price [ICP],” said Achmad Riyaldi, a lawmaker from the Prosperous Justice Party (PKS), at a hearing session with Energy and Mineral Resources Minister Jero Wacik in Jakarta on Monday.

As a result of Indonesia’s declining oil production, natural gas had emerged as an important contributor to state revenues, but currently, the prediction for revenues from gas was based on the ICP assumption, he said.

Nur Yasin of the National Awakening Party (PKB) said a so-called Indonesian Gas Price (IGP) might have two prices: export price and domestic price. The prices had to be different because domestic prices were usually lower than exports.

Ismayatun from the Indonesian Democratic Party of Struggle (PDI-P) concurred with Achmad and Yasin. She said her party would welcome the government including an IGP assumption in the 2013 state budget.

She said the government already had the calculation for the amount of gas lifting (sales) and therefore a fixed pricing formula needed to be in place to make the prediction for revenues clearer. “I hope we can have a special session to further discuss this proposal, starting from the mechanisms of implementation and impact of the application of the formula,” Ismayatun explained.

During the meeting the government set next year’s oil and gas lifting at between 2.21 million and 2.32 million barrels of oil equivalent per day (boepd), comprising oil lifting of between 890,000 barrels per day (bpd) and 930,000 bpd plus gas lifting of between 1.32 million boepd and 1.39 million boepd.

In response to the suggestion, Minister Jero revealed that his office had discussed the possibility of creating an IGP formula because the current prices varied from one producer to another.

“We’ll see. We have discussed that option [an IGP formula], we’ll study whether it can be implemented this year or not. There will be several steps before the implementation and we’ll discuss it together [with the DPR],” he told reporters on the sidelines of the hearing.

Pri Agung Rakhmanto, of the ReforMiner Institute, said a formula for gas prices would be difficult to create because each gas contract had different price formulas.

Creating an average price through the IGP would actually bring no benefit except making it easier to predict state revenues from gas sales, he said.

“The IGP isn’t really necessary, not like ICP. The ICP is needed to prevent oil producers from selling crude to their subsidiaries or affiliated companies at below-market prices, usually referred to as transfer pricing,” he told The Jakarta Post.

During the meeting, the government and the commission agreed to set the assumption of the ICP in 2013 at between US$95 and $120 per barrel.