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Gas price reductions harm upstream industry
According to ministerial decree No.8/2020, the cut in the gas price at the wellhead – the producer level – will not affect the revenue of gas production contractors in the upstream business.
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Illustration of worker in oil and gas industry. (Shutterstock/File)
T
he Energy and Mineral Resources Ministry recently announced the reduction of certain gas prices for specific industries to US$6 per million British thermal units (mmbtu) at the consumer level effective on April 1.
The gas price cut was based on Presidential Regulation (Perpres) No. 40/2016 on the determination of natural gas prices. Consequently, the gas price at the producer level will automatically be reduced as well, taking into account the costs of transporting the gas from its point of origin to where it will be consumed.
But according to ministerial decree No.8/2020, the cut in the gas price at the wellhead – the producer level – will not affect the revenue of gas production contractors in the upstream business. The price reduction will be compensated for by government revenue under the production-sharing contract scheme.
To better understand the impact of the reduction in gas prices, we need to examine the following formulas:
