Infrastructure is one of the challenges in distributing natural gas, as it can only be distributed through pipes or converted into LNG, to facilitate distribution. The lack of a natural gas pipeline network infrastructure in Indonesia is one of the factors behind the suboptimal utilization of the resource domestically. One example is the absence of a gas pipeline from Cirebon to Semarang, which has an impact on the gas supply for Kendal and Batang industrial zones.
Regardless of the domestic natural gas market, Indonesia’s position vis-a-vis other Asean countries is quite competitive. The selling price of natural gas for industry in Indonesia is between US$6 to US$8.8/mmbtu, compared to US$7 in Thailand, US$6.4 in Vietnam, US$8.3 in Malaysia and US$9.27 to US$34.3. It is worth noting that Singapore does not produce natural gas so it gets its supply from Indonesia and Malaysia. This is why the price of gas in the country tends to be higher.
The prices of natural gas in Asean countries are quite competitive compared to global rates. Based on IGU data (2023), wholesale gas prices in Malaysia and Vietnam are between US$5 to US$5.5/ mmbtu. The price of Indonesian natural gas is around US$6. Thailand around US$7 and Singapore between US$12.2 to US$12.5. Gas prices in Asean tend to be lower than those in European and Asia Pacific countries.
In general, there are three major components that determine the setting of gas prices, namely, upstream prices, distribution and trading costs and price administration for end consumers. In regard to natural gas pipeline networks, the midstream costs or transmission and distribution costs need to be discussed. Transmission costs cover the flow of natural gas from a wellhead to a hub. Meanwhile, distribution costs are those costs for transporting natural gas from the hub to end-consumers.
Indonesia’s midstream cost, at around US$2 to US$2.8/mmbtu, tends to be higher compared to other countries such as Malaysia (US$1.44 to US$3), Thailand (US$2 to US$3.3), Vietnam (US$1.39). The difference in midstream costs is of course influenced by the policies of each country. Thailand has more affordable midstream costs because its industrial hubs are concentrated in areas relatively closer to the gas wells. This makes the construction of transmission pipes easier and distribution costs cheaper.
Malaysia also has lower midstream costs than Indonesia, due to its government’s policies which regulate tariffs for small industries and households. Even though in 2023 the price of gas for industry will be adjusted to a market price, the government will still regulate the distribution cost, by setting a ceiling rate.
In Vietnam, the industry is monopolized by state-owned company PetroVietnam. This enables several industries and power plants to obtain a gas supply at far below the market price, thanks to a government subsidy. Singapore, as a country that imports 100 percent of its natural gas, needs to follow the market price with distribution costs agreed on a business-to-business basis with exporting countries.
In view of the Indonesian natural gas market, compared to its Asean counterparts, there are several things that need to be considered, to ensure that TAGP can be realized. These include:
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Indonesia’s transmission and distribution costs are still uncompetitive, compared to those of other countries. This should be factored in, because even though upstream prices are competitive, gas prices for end-consumers will remain high, due to these cost components.
Domestic gas pipeline infrastructure. Since TAGP is a joint policy, the development of pipeline infrastructure will involve several countries. The Indonesian government should not forget that the current natural gas policy also encourages the use of gas for domestic consumers. The lack of domestic gas pipeline infrastructure is still a cause for concern, so it should become one of the key focuses.