Indonesia Opens Doors for Gas Imports to Boost Competitiveness
The government of Indonesia decided to allow more imports of gas for the domestic industry, a decision that should put downward pressure on Indonesia's gas price. Many players in Indonesia's manufacturing industry have complained about the high domestic gas prices. This causes high production costs and therefore Indonesian manufacturers lack competitiveness (compared to foreign counterparts), while foreign investors think twice before investing in the nation's manufacturing industry.
Muhammad Khayam, Director of the Upstream Chemical Industry within Indonesia's Industry Ministry, said the government's new policy allows local industries to purchase imported gas with a more competitive price. He added that this policy (namely allowing imports of gas for Indonesia's industry) is only of a temporary nature. Although not mentioning a time-frame, Khayam said the central government will disallow LNG imports in the future.
However, the government will not allow local companies in Indonesia to import gas excessively in order to safeguard enough demand for domestically-produced gas as well as attracting appetite for direct investment in Indonesia's upstream gas sector. Khayam said there are actually still ample gas reserves in Indonesia, for example the Bintuni bay (West Papua) and Masela block (near East Timor). However, it needs up to 15 years to tap the reserves in these blocks.
Regarding the new gas imports, the government aims to direct these imports to three sectors: (1) steel, (2) petrochemicals, and (3) fertilizer. What the exact impact of these imports will be on Indonesia's trade balance is is not yet fully calculated by the Indonesian government. However, Khayam said the volume of future gas imports will not be that high. Moreover, these imports will be directed to those regions that have a gas deficit within their industrial centers.
As an alternative (if domestic gas supplies decline), Khayam added that the Indonesian government wants to increase its focus on coal gasification. Through coal gasification coal can be converted into electricity. Indonesia is one of the world's largest exporters of coal.
Earlier, Indonesian President Joko Widodo ordered the national gas price (for industrial usage) to be lowered from currently USD $9.5 - 12 mmbtu to the range of USD $5 - 6 mmbtu because Indonesia's high gas prices make local export products uncompetitive in global trade. Per January 2017 eight companies (within the nation's petrochemicals, fertilizer and steel industries) can enjoy lower gas prices (these companies are Kaltim Parna Industri, Kaltim Methanol Timur, Pupuk Kalimantan Timur, Pupuk Kujang Cikampek, Pupuk Sriwidjaja Palembang, Pupuk Iskandar Muda, Petrokimia Gresik, and Krakatau Steel). Perhaps the country's ceramic and glass industries will also be awarded a lower gas price. The government is currently studying this proposal.