Indonesia Weighs LNG Price Review

Indonesia's Energy Ministry intends review the terms of the natural gas companies' sales contracts as it is working to increase gas revenue.

"Any gas sales that are below the economical price will be reviewed," Evita Legowo, director general of oil and gas at the Energy Ministry, said. Evita, however, did not provide further details on which contracts the government planned to review.

Further, Evita said the prices stated in sales contracts should reflect the market price. The duration and price contained in sales contracts are typically determined up front by gas producers. Evita also said it was not yet clear whether the amount of gas sold or the duration of contracts would change as part of the renegotiations, "but the price of the gas will be affected."

"We will definitely review gas sales prices that are below the economical price," Evita noted. Gas sales through pipelines will also be reviewed, Evita said. Gas companies sell their product through pipelines to domestic companies, including state utility provider Perusahaan Listrik Negara, as well as exporting to Singapore and Malaysia.

Priagung Rakhmanto, an energy analyst at the Reforminer Institute, said the current market price of natural gas should hover around $10 per mmbtu. "There are several gas sales contracts that are sold under the economical price," Priagung noted. He did not specify which contracts were below market price.

Natural gas in Indonesia is sold at an average of $2.70 per mmbtu, Priagung said, but citing market price data, he said the average price should be $4 to $5 per mmbtu.

"The government should be aware of this. They should talk with gas distributors to reduce the tariffs and increase the wellhead price," Priagung said. Increasing wellhead prices would push gas companies to sell gas to the domestic market, Priagung continued.

Source: Jakarta Globe