The document discusses strategies to mitigate disparity between domestic and LNG gas prices in Indonesia for energy sustainability. It identifies that most gas production is already tied up for export under long-term contracts, while domestic gas allocation has not made significant progress due to economic reasons. The key objectives discussed are to identify the root causes of price disparity, develop strategies to increase domestic gas use while maintaining business competitiveness, and brainstorm ways to increase allocation to the domestic market, especially from new fields.

1. 1
MITIGATING DISPARITY BETWEEN
DOMESTIC GAS PRICE AND LNG PRICE FOR ENERGY
SUSTAINABILITY
Presented by:
Andika Mahardika
SPE- IATMI YP Event Dec 15
 Indonesia energy policy put gas as one of priority for domestic
market.
 Most of gas production already tied-in for export and covered
with gas sales agreement.
 PSC’s rules mention mandatory for DMO around 25%, but gas
for domestic use doesn’t have significant progress because
economical reason
 Disparity gas price between export and domestic use became
main reason.
 Domestic gas price should meet economical reason for all
stakeholders and also need to mitigate allocation disparity.
2
BACKGROUND

2. 2
3
 Root causes identification for disparity between
domestic (upstream/downstream) and export
markets.
 Build a strategy to increase the domestic use but still
competitive in business perspective
 Identify government regulations that could be
stimulus for domestic gas and identify economical gas
price for the domestic market.
 Brainstorming to increase domestic allocation,
especially at new gas field development.
BACKGROUND
OBJECTIVE
INDONESIA’S NATURAL GAS REGULATION
Permen ESDM 03/2010 tentang Alokasi dan Pemanfaatan Gas Bumi untuk Pemenuhan
Kebutuhan Dalam Negeri :
 Pemanfaatan gas bumi diprioritaskan untuk kebutuhan Dalam Negeri dengan tetap mempertimbangkan
keekonomian pengembangan lapangan.
 Alokasi pemanfaatan cadangan gas bumi yang baru diketemukan, diprioritaskan untuk memenuhi
kebutuhan setempat. Apabila terdapat kelebihan dapat dimanfaatkan untuk memenuhi kebutuhan wilayah
lainnya.
 Pemanfaatan gas bumi untuk Dalam Negeri dilakukan dengan mempertimbangkan ketersediaan
infrastruktur, besarnya cadangan dan keekonomian lapangan, dengan urutan prioritas:
1.Upaya peningkatan produksi minyak dan gas bumi
2.Sebagai bahan baku industri pupuk
3.Sebagai penyediaan tenaga listrik dan
4.Sebagai bahan bakar/ bahan baku untuk industri lainnya

3. 3
INDONESIA’S NATURAL GAS RESERVES
0
20
40
60
80
100
120
140
160
TSCF
Terbukti 108.4 104.7 103.3 101.5 100.3
Potensial 48.7 48.2 47.4 48.9 49.0
Total 157.1 152.9 150.7 150.4 149.3
2010 2011 2012 2013 2014
PAPUA
NATUNA
MALUKU
TERBUKTI = 100,26 TSCF
POTENSIAL = 49,04 TSCF
TOTAL = 149,30 TSCF
NAD
SUMATERA UTARA
SUMATERA TENGAH
SUMATERA SELATAN
JAWA TIMUR
JAWA BARAT
SULAWESI
KALIMANTAN
CADANGAN GAS BUMI ( TSCF )
7,51
1,15
7,06
17,90
50,84
3,22
6,44
13,99
2,56
15,21
23,42
NATURAL GAS MAPPING
Status 01.01.2014
LAST 5 YEARS RESULT
NATURAL GAS VALUE CHAIN
Upstream Midstream Downstream

4. 4
TATA KELOLA DAN REGULASI GAS BUMI
UUD 1945 Pasal 33
Ayat 1
Bumi, air, dan kekayaan alam yang terkandung di dalamnya dikuasai oleh negara dan dipergunakan sebesar-
besarnya untuk kemakmuran rakyat.
Ayat 2
Cabang-cabang produksi yang penting bagi negara dan yang menguasai hajat hidup orang banyak dikuasai
oleh Negara.
UU NO 30 Tahun 2007 tentang Energi
Pasal 3
tercapainya kemandirian energi dan tercapainya ketersediaan energi dalam negeri, baik dari sumber di untuk
pemenuhan kebutuhan energi, bahan baku industri dalam negeri dan peningkatan pendapatan negara.
Pasal 20 (1)
penyediaan energi dilakukan diantaranya melalui diversifikasi energi”.
Pasal 20 (2)
Penyediaan energi oleh Pemerintah dan/atau pemerintah daerah diutamakan di daerah yang belum
berkembang, daerah terpencil, dan daerah perdesaan dengan menggunakan sumber energi setempat,
khususnya sumber energi terbarukan.
Pasal 21
pemanfaatan energi dilakukan diantaranya dengan mengoptimalkan seluruh potensi sumber daya energi, dan
memprioritaskan pemenuhan kebutuhan masyarakat”.
TATA KELOLA DAN REGULASI GAS BUMI
UU NO 22 Tahun 2001 tentang Minyak dan Gas Bumi
• kegiatan usaha Minyak dan Gas Bumi bertujuan menjamin tersedianya minyak bumi dan gas bumi,
sebagai sumber energi maupun sebagai bahan baku untuk kebutuhan dalam negeri.
• meningkatkan pendapatan negara untuk memberikan kontribusi yang sebesar-besarnya bagi
perekonomian nasional dan mengembangkan serta memperkuat posisi industri dan perdagangan
Indonesia.
• Pemerintah memberikan prioritas terhadap pemanfaatan Gas Bumi untuk kebutuhan dalam negeri
PP Nomor 35 Tahun 2004 tentang Kegiatan Usaha Hulu Migas
Kebijakan Pemanfaatan Gas Bumi untuk Kebutuhan Dalam Negeri
• Menteri menetapkan kebijakan pemanfaatan Gas Bumi untuk memenuhi kebutuhan dalam negeri dengan
mempertimbangkan kepentingan umum, kepentingan negara, dan kebijakan energi nasional termasuk di
dalamnya aspek teknis yang meliputi cadangan dan peluang pasar Gas Bumi, infrastruktur baik yang
tersedia maupun yang direncanakan dan usulan dari Badan Pelaksana

5. 5
TATA KELOLA DAN REGULASI GAS BUMI
PP 55 Tahun 2009 tentang Perubahan PP Nomor 35 Tahun 2014
Domestic Market Obligation
Kontraktor berkewajiban untuk memenuhi kebutuhan minyak dan gas bumi dalam negeri dengan
menyerahkan 25% dari produksi minyak dan gas bumi
Instruksi Presiden Nomor 2 Tahun 2010 tentang Revitalisasi Industri Pupuk
Penyediaan Gas Bumi untuk Industri Pupuk
• Menteri ESDM memprioritaskan alokasi pemenuhan kebutuhan gas bumi untuk bahan baku dan energi
industri pupuk;
• Menetapkan harga gas bumi yang dialokasikan dari produksi dalam negeri untuk keperluan industri pupuk
didasarkan pada hasil kesepakatan instansi terkait yang dikoordinasikan oleh Menteri Koordinator Bidang
Perekonomian.
NATURAL GAS INDUSTRIES BUSSINESS MODEL
1. Vertical Integration Model, this is traditional model which is production, transportation
and distribution handled by one company. Regulator will be appointing a company to
responsible all activities from upstream to downstream.
2. Competition in production segment only, in this model create separation between
production and transportation / distribution. In this model will be make competition
between operator to develop gas field and make production will be more efficient.
Regulator will be appointing another company who will responsible to transport and
distribute gas to end user.
3. Open Access to Public Trading, this model opens the access only for public trading.
Trading company will be having access to buy gas from service provide which is
appointing by regulator and selling the gas to end user.
4. Fully open Access, this model absorbs fully liberation in gas business from upstream
to downstream.

6. 6
HOW TO DETERMINE GAS
PRICE
11
“Oil is an internationally traded commodity.. But the isolated regional nature
of gas markets, coupled with heavy government intervention in gas pricing,
has led to wide variations in pricing practices. There is no world gas price”.
Jensen, 2011
12
GAS PRICING TYPE

7. 7
13
GAS PRICING MECHANISM
14
INDONESIA’S GAS PRICING REGULATION
Note : BP Migas dismissed by MK and temporary replaced by
SKK MIGAS

8. 8
15
INDONESIA’S GAS PRICING REGULATION
16
COST COMPONENT FOR GAS PRICING

9. 9
Financial Aspect
17
COST COMPONENT FOR GAS PRICING
18
COST COMPONENT FOR GAS PRICING
LNG Financial Aspect (example)

10. 10
COST COMPONENT FOR GAS PRICING
Pipeline Financial Aspect (example)
No. Name of Project Loan Condition
1
Gas Distribution (Jakarta, Bogor,
Medan) I = 12 %, grace period = 5 years, loan period = 15 years
2 Gas Distribution (Surabaya) i = 13 %, grace period = 5 years, loan period = 15 years
3 Grissik - Duri i = 15 %, grace period = 4 years, loan period = 20 years
4 Grissik – Batam - Singapore i = 15 %, grace period = 4 years, loan period = 20 years
5 S.Sumatra - W.Java
i = 0.95 % and 0.75%, grace period = 10 years, loan period = 40
years
6
W. Java Trans & Distribution
Expansion i = %, grace period = years, loan period = years
Toll fee : 2-4 usd/mmbtu
20
No Gas Pricing Model Explanation
1. Fix Price Commonly used for energy generation sector. This price stay same
during contract. Currently use for term agreement
2. Fix price with yearly escalation Commonly used for industry. It will be yerarly correction depends on
oil price, production rate and economic growth
3. Gas Pricing with Oil price
correlation
Commonly used for upstream transaction and for exploitation process.
For example : Gas pricing for LNG to Japan : 0.987x0.154xJCC*+0.34
4. Gas pricing for specific domestic
end user
Commonly used for petrochemical & fertilizer product. Formula for
gas pricing in fertilizer industries :
5.75+0.2(NH3-350)/30+0.3(ureaG-329)/26
5. Combination price between
domestic end user and oil price
Basically same above explanation. Commonly used for fertilizer and
petrochemical industries but oil price will put on formula:
C1x(NH3-25)/155+C2xICP/15+C3x(NH3-225)/32
INDONESIA GAS PRICING MODEL

11. 11
21
INDONESIA GAS PRICING MODEL (CONTD)
Prices of Indonesia’s LNG exports to Japan, S. Korea and
Taiwan can be calculated using the 1973 formulae:
where:
n = Year
Pn = ICP-Indonesian Crude Price @ Year n
Po = ICP-Indonesian Crude Price @ 1973 = US$
6,0/barrel
n
nLNG
Po
Pn
P )03,1(1,09,0)(

Sumber: Hananto Nugroho, LNG contract and Pricing , Bappenas
MITIGATING GAS ALLOCATION DISPARITY
22

12. 12
1.Supply Priority versus Demand
23
• Indonesia gas production fluctuate from mature field
such as ONWJ and Natuna field. However, demand still
increase in domestic market
• Indonesia positive economic growth increasing demand
rapidly especially for electricity
• Regulator should be make supply priority to domestic
energy sector especially in new develop gas field like
Masela and Donggi Senoro
• Regulator should be push PSC’s Company to allocate
any excess gas production to domestic market.
Pertamina EP already allocated nearly 100 % to
domestic market
INDONESIA GAS ALLOCATION 2014
1.Supply Priority versus Demand

13. 13
25
1.Supply Priority versus Demand (Contd)
Projected PLN Jawa Bali Demand Versus Gas Supply
2.LNG Infrastructure
26
• As Island country Indonesia with fast-rising
demand and limited interconnections between
countries. Indonesia need to speed up installation
of several LNG regasification terminals,
especially for East Area
• Distance between gas production region to
center of demand region makes Indonesia relies
on a good infrastructure
• Converting “idle” LNG Plant to Regasification
Plant .

14. 14
3. Pipeline – Gas Hub Connection
27
1. The Indonesian natural gas pipeline network is comprised of a number of
fragmented point-to-point grid systems.
2. There are three main transmission system operators (TSO) in the country: two
state-own companies - PGN and Pertagas - as well as a private transmission
company, Trans Gas Indonesia (TGI).
3. Need to have Pipeline Gas Hub System
28
3. Pipeline – Gas Hub Connection

15. 15
29
3. Pipeline – Gas Hub Connection
MITIGATING GAS PRICE DISPARITY
30

16. 16
1.Acceleration Law Revision 22 of 2001 on Oil and Gas
31
After judicial review by MK. Its need to accelerate revision of
oil/gas law consisting:
• Completion of Institutional aspects : required one government
body who responsible for managing upstream oil and gas
business as well as inter-agency coordination. It’s can be form
as BUMN , BHMN or ESDM itself
• Integration of upstream and downstream sector
32
MITIGATING GAS PRICING DISPARITY
2.Domestic Pricing Policy by Government
• Renegotiation for export allocation in existing contract.
Since limited supply to domestic market
• Production, transportation, distribution cost
transparency. Gas pricing on domestic market can’t
be relies in market price
• Government should be active in consumer selection
and pricing negotiation especially for DMO allocation
also government’s production sharing

17. 17
3.Fiscal Policy for Domestic Market
Allocation
33
• Increasing production sharing for PSC
Company. This step need to take for
attracting PSC company develop gas field
for domestic market
• Domestic gas price subsidized scenario, it
can be done for energy sustainability and
public needs
1.Supply Priority versus Demand
2.LNG Infrastructure
3.Pipeline – Gas Hub Connection
4.Acceleration Law Revision 22 of 2001 on Oil and Gas
5.Domestic Pricing Policy by Government
6.Fiscal Policy for Domestic Market Allocation
34
SUMMARY
Steps to mitigate price disparity is confirming availability gas
allocation to domestic market by following step below:

18. 18
Mitigating Disparity Between Domestic Gas
Price and LNG Price for Domestic Energy
Sustainability
Presented to
SPE Young Professional-Java Section and
IATMI Young Professional
By:
JUMADIS ABDA
Jakarta ; 17 December 2015

19. 19
Background
 Natural Gas as primary energy is still cheap energy and
still alot of reserves in Indonesia.
 If used to produce electricity, Natural Gas has many
advantages to drive power generation.
 Environment friendly.
 So that proper to use in many sectors and be
able to strong foundation of Indonesia’s
economic.
Oil and Gas Reserves
Januari 2014
Source : SKK Migas Annual Report

20. 20
The Advantages to Power Plant
 Budget for investation is cheaper.
 Faster to build power station, only 2 years.
 High reliability in operation.
 Need smaller land to build power station.
 Be able to operated as base load and peak load.
 The most efficient in operation (Heat Rate is the
most lowest).
 Etc.
Impact to PLN ; Problems of Natural Gas In
Electrical Company (PLN) Nowaday
 Expensive  PLN Price about US $ 10/MMBTU
But :
- LNG Price to Japan about US $ 6/MMBTU,
- WTI (NYMEX) about US $ 2/MMBTU
- TNB Price about RM 15,2/MMBTU or US $ 3.5/MMBTU
 Lack of suply of Natural Gas
- PLN still use alot of fuel oil to generate electricity about
10%.
But : TNB and EGAT only about 2%.
 The Electricity’s price become more expensive too, so that
the economic growth of Indonesia would be decline.

21. 21
Energy Mix of PLN : 2008 - 2014
Energy Mix of PLN
Gas 28,13% ; Fuel Oil
15,08% (2014)
FY 2013

22. 22
Energy Mix of TNB (PLN
Malaysia)
Source; TNB Annual Report 2013
Gas 51% (2014)
And from EGAT (PLN Thailand)
(2014)
 Natural Gas : 66,91%
 Fuel Oil : 1,07%
Source; EGAT Annual Report 2014

23. 23
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Subsidies from government to PLN 2005 - 2015
Rp. Triliun
Or :
 Electricity rates increased so that it
becomes more expensive.
 And it makes Indonesia’s economic in
difficulty condition.

24. 24
Impact to Indonesia’s Economic
 Deficit of budjet in energy of export – import:
Export the cheap energy and import the expensive
energy.
> Export natural gas; 6x3,500,000x365 = 7,665 Million
> Import fuel oil ; 9x3,500,000x365 =11,497.5 Million
so the deficit become ; US $ 3,632.5 Million/Year
 Currency converter IDR to US $ would be decline.
 High cost economic would be happen.
 Industries don’t have capability to compete with abroad.
 No new job area in Indonesia (jobless).
Crude Oil Price History
Source: wtrg.com

25. 25
Natural Gas Price History
Source: wtrg.com
Comparison of Natural Gas Price
to Crude Oil Price (13 Dec 2015)
 Crude Oil US $ 36/barel = 36/159
= US $ 0,226/Liter
or ; 0,226 x 25 = US $ 5.66/MMBTU
 Natural Gas US $ 1.77/MMBTU
 So that C.O Price compare to N.G Price :
 5.66 : 1.77 = 3.2 : 1 (Natural Gas is the
cheapest)

26. 26
Jokowi-JK in Energy Sector
before Election
Source: Jokowi-JK Team
Energy
Jokowi-JK in Energy Sector
before Election
Source: Jokowi-JK Team
Energy

27. 27
Jokowi-JK in Energy Sector
before Election
Source: Jokowi-JK Team
Energy
Jokowi-JK in Energy Sector
before Election
Source: Jokowi-JK Team
Energy

28. 28
Jokowi-JK in Energy Sector
before Election
Source: Jokowi-JK Team
Energy
How to solve (Mitigating
Disparity) for PLN
 Change the mindset of the energy manager
in government of Indonesia
 Change the scheme of natural gas price for
domestic.
 Build infrastructure of gas like gas pipe so
that the natural gas price is delivered with
low cost (natural gas price become cheaper
than LNG).

29. 29
Change the mindset of the
energy manager of Indonesia
 Back to Basic Regulation of Indonesia (Constitution UUD
1945, article 33 clause 2 and 3),
 Need to educate energy manager of goverment so that
they know that natural gas would be exported constitute
disadvantages for Indonesia. The export should be limited
and controlled by goverment, maximum the same as law
of UU 22/2001. Max 25% x percent of portion to PSC to
domestic.
 Encourage to goverment always remember and
consistency for their promises before the election to
priority of cheap energy (natural gas) for Indonesia’s
community.
Change the scheme of natural
gas price for domestic
 Evaluation of natural gas price in upstream based
on ROI and added some percent of benefit, to
assure domestic energy sustainability and security
of supply to support Indonesia economic so that
be able to compete with the other country.
 Price of natural gas based on export/
international price but a little bit lower. The
scheme can be carried out with crude oil price as
reference.

30. 30
Build gas pipes as Infrastructure
 Build gas pipe as cheaper infrastructure to hold down of
natural gas price significantly, mainly in down stream
cost. It will be better built by goverment.
 Recommended to these are (very urgent):
- Gas pipe from IDD Makassar Strait (1000 MMSCFD) to
Kalimantan and Jawa.
- Gas pipe from Masela (1200 MMSCFD) to NTT, NTB,
Maluku, Bali and Jawa. To replace Floating LNG Terminal
in the sea by upstream cost with cost recovery.
- Gas pipe from Mahakam Block after 2017?.
THANK YOU verY mUcH FOr
YOUr ATTeNTIONS