Indonesia considers forcing gas producers to sell output to domestic distributors

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JAKARTA — Indonesia’s gas producers could be forced to sell a proportion of their output locally to ensure manufacturers can secure cheap supplies after they complained about high prices, according to a plan proposed by the country’s Industry Ministry.

The so-called domestic market obligation (DMO) would require gas producers to sell a portion of their output to local buyers at a set price, making sure local gas distributors have sufficient supplies to keep tariffs low.

The ministry presented the plan to President Joko Widodo at a meeting on Monday, arguing that it would help state-controlled gas utility PT Perusahaan Gas Negara sell gas to industry at a lower price, Industry Minister Agus Gumiwang Kartasasmita told reporters ahead of the meeting.

“We will formulate how big the DMO will be and at what price level, but the point is gas supplied to factories should be priced below $6 per million British thermal unit (mmbtu) if possible,” he said.

Natural gas is currently sold to manufacturers at around $8-$9 per mmbtu, he said.

President Widodo, in his opening speech at the cabinet meeting, said high gas prices were making local manufacturing uncompetitive and urged his cabinet to find out why prices remained elevated.

Indonesia in late 2016 ordered energy companies to cut natural gas prices to $6 mmbtu for the fertilizer, steel and petrochemical industries. However, companies complained last year that the rules have not been fully implemented.

The government is also considering lowering or cutting the $2.2/mmbtu share it receives from gas producing contracts, Widodo said.

“That is something that we need to discuss with the Finance Minister,” he said.

The government is also discussing the possibility of allowing companies to import gas if there are no gas utilities near their factories, Kartasasmita said.

Coordinating Minister Luhut Pandjaitan, who oversees the energy ministry, said President Widodo has given ministers three months to decide on a strategy to lower prices.

Gas producers in Indonesia sold 4,014 billion British thermal units of gas per day (bbtud) domestically and exported 2,090 bbtud of gas between January-September last year.

Indonesia, a net exporter, previously expected to start importing gas this year as demand outpaced production. However, that may be delayed following the discovery of a major new natural gas field last year and lower than expected consumption. — Reuters