PwC analyses the most critical changes and developments in Indonesia’s gas market

Lenita Tobing's picture
Lenita Tobing, Partner, PwC Consulting Indonesia
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PwC reports that Indonesia is ranked 10th in terms of global gas production, with proven reserves of 102 TCF in 2016. With the country's gas sector going through a period of substantial change, in the next 10 years Indonesia could move from being one of the world’s leading LNG exporters to being a net importer of gas.

With the Gas Indonesia Summit & Exhibition only 2 weeks away, Gastech Insights spoke to Lenita Tobing, speaker in the event and Partner at PwC Indonesia. In this 2-part interview Ms Tobing shares her views on the Indonesian natural gas market and explains more on the critical changes and developments the market faces.

Gastech Insights: How would you describe Indonesia’s gas market in today’s global dynamic gas industry?

Lenita Tobing: Indonesia’s gas market is currently at a critical path which will determine how we as a country will go forward with our gas strategy and security of supply. Key decisions on regulations, infrastructure investment and market transparency/system need to be made soon and thus drive the directions of the sector.

Indonesia currently exports natural gas as production exceeds demand, however, changes are expected in the near future. Indonesia’s gas market demand is predicted to rise year by year (with a CAGR of 3%), and the demand is projected to come from industry, electricity and fertilizer. Industry demand in 2030 is expected to be ~55% of the total demand in Indonesia.

On the other hand, it is projected that there will be a reduction in the Indonesian gas discoveries and production. This combination of a projected increase in demand and a projected decrease in supply results in Indonesia to be a net importer by 2019.

As such, key decisions need to be made in order to clarify our directions – exporter vs importer – and security of supply going forward.

Gastech Insights: What are the most critical historical changes and developments in Indonesia’s gas market?

Lenita Tobing: I would identify three critical changes and developments: 

Infrastructure is highly concentrated in Java Island - Gas infrastructure, specifically for midstream, is highly concentrated in the Java island. The Indonesia Gas Balance released by the Ministry of ESDM projects that there will still be uneven gas balances in 2030 (e.g. Riau is projected to be experiencing a surplus of 853 mmscfd while Sumatera Tengah & Selatan is projected to be experiencing a deficit of 1,075 mmscfd). This is due to the lack of infrastructure to support the transportation of gas across Indonesia to meet demand and supply.

Lack of investments for expanding internal market - Currently, foreign companies, such as CNOOC Limited, Total E&P Indonesia, Conoco Philips, BP Tangguh, and Exxon Mobil Oil Indonesia, account for about 87% of Indonesia's natural gas production. A large part of Indonesia's gas production is exported as the nation's gas production is dominated by foreign companies that are only willing to invest if allowed to export the commodity. Little investment is made in the development of the midstream and distribution – as such, hampering development of the overall industry.

Regulation developments to improve gas market - There have been several regulation developments attempting to strengthen the gas market through increasing gas demand and attractiveness to investors including:

  • Improved production sharing contract (PSC), shifting from cost recovery scheme to a gross split scheme
  • Order of priorities for gas allocation and utilisation to support government programs towards transportation, households and small customers
  • Improved regulations to gas prices as they now need to be approved by Ministry of ESDM through SKK Migas
  • Gas for transportation development roadmap
  • Simplification of oil & gas investment permits

Gastech Insights: Going forward, where do you see the critical changes and developments in Indonesia’s gas market?

Lenita Tobing: For future developments and changes I would identify the following: 

Financial incentives to build midstream infrastructure - The Indonesian government will need to provide more financial incentives (e.g. tax holidays) to attract more domestic and foreign investors to develop the midstream infrastructure. The current midstream sector has limited infrastructure and is dominated by Pertamina and PGN, leading to high gas prices. The improved infrastructure and increase in number of investors will put a downward pressure to gas prices. This will be crucial to increase competitiveness of domestic gas with the U.S. projected to export competitively priced gas into Southeast Asia.

This is the first part of a 2-part interview with Lenita Tobing. Keep up to date with our latest articles and interviews to ensure you don't miss out on part 2. Sign up to the weekly newsletter and follow us on all social media channels.

Share your insights and join the conversation: What do you think the next key development is for the Indonesian gas market? Leave your comments below.

Lenita Tobing is speaking on 12th July at the Gas Indonesia Summit & Exhibition at Jakarta Convention Center on "Developing LNG Infrastructure in Indonesia - Investment Opportunities". To see the full conference programme and to learn more about the upcoming event, click here.