Decreasing Gas Prices Requires Time to Support Increased Industrial Gas Absorption
Jakarta, June 16, 2020 – SKK Migas recorded the realization of lifting in May 2020 reaching 5,253 MMSCFD or 10.45% lower than the realization of gas lifting / channeling in the first quarter of 2020 which reached 5,866 MMSCFD. Meanwhile, if compared with the 2020 APBN target of 6,670 MMSCFD, the realization of gas lifting / channeling in May 2020 only reached 79%.
Based on sales data for May 2020 LNG uptake especially for the domestic market fell sharply to only 2 cargoes compared to absorption in the first quarter of 2020 which reached 13 cargoes. Due to the inability to absorb the domestic market, especially by PLN as the main buyer of LNG in the country, the mitigation undertaken is to sell cargo for the export market with the risk of fluctuating prices at this time.
The decline in gas absorption by domestic buyers, mainly by PLN and also the industrial sector in May 2020 due to the condition of COVID-19 which has an impact on the limited movement of goods and people so that many factories reduce their operations or even have to stop production temporarily. This has an impact on reduced energy consumption in the industrial sector. The decreasing energy requirements in industry, commercial and offices during COVID-19 also have an impact on the energy needs of PLN.
With the issuance of the Minister of Energy and Mineral Resources Regulation No. 8 of 2020 concerning Procedures for Determining Users and Prices of Certain Natural Gas in the Industrial Field; Minister of Energy and Mineral Resources Regulation No. 10 of 2020 concerning Amendments to the Regulation of the Minister of Energy and Mineral Resources Number 45 of 2017 concerning Utilization of Natural Gas for Power Plants; Minister of Energy and Mineral Resources Decree No. 89 K / 10 / MEM / 2020 concerning Users and Certain Prices of Natural Gas in the Industrial Field; and Decree of the Minister of Energy and Mineral Resources No. 91 K / 12 / MEM / 2020 on the Price of Natural Gas at the Power Gate (Plant Gate) is expected to provide support for increasing gas usage.
The Head of SKK Migas Dwi Soetjipto conveyed, as a support for the ESDM Ministerial Regulation to run effectively, SKK Migas has carried out its duties by conducting socialization and coordination to KKKS. “Earlier in early June 2020, SKK Migas and KKKS signed the Side Letter of PSC agreement to provide legal guarantees for the contract and create business certainty. The KKKS also signed a Letter of Agreement (LoA) that took effect on April 13, 2020. The signing of the LoA also to provide business certainty for KKKS as producers in the upstream sector and gas buyers (buyers), “Dwi said.
Dwi added, with the signing of the Side Letter of PSC, explaining the profit sharing adjustment between SKK Migas and KKKS by using a provisional entitlement to natural gas prices determined by the Minister of Energy and Mineral Resources. This calculation is carried out through an adjustment mechanism for calculating the reduction of the state’s portion, so that in the upstream oil and gas side there is a guarantee of certainty where the revenue of the KKKS portion does not change.
With this policy, buyers can buy gas at a lower price of US $ 6 per MMBTU, so it is expected to increase gas absorption by the user industry. “The low uptake of pipeline gas to the downstream gas user industry in May 2020, we are currently seeing it not only due to the Covid-19 condition but also as a transition period from the gas user industry to the implementation of Minister of Energy and Mineral Resources Decree”, Dwi said.
“Furthermore, the successful implementation of the ESDM Ministerial Regulation will depend on the readiness of the gas user industry and also PLN. We hope that in the coming June and onwards with the implementation of the ESDM Ministerial Regulation and also the reduction in restrictions because Covid-19 natural gas uptake will move up, and can have a positive impact on improving the national economy through increasing added value in the downstream industry, which can be achieved according to the initial objectives of the Government’s policy through Presidential Regulation No. 40 of 2016. “, concluded Dwi.