Lower gas prices: Threat or opportunity for Indonesia?

Andrew Seck's picture
Andrew Seck, Regional Head of LNG, Asia, Uniper Global Commodities SE
Comments: 0

In light of the upcoming Gas Indonesia Summit, we asked Andrew Seck, Regional Head of LNG, Asia at Uniper Global Commodities SE for his views on Indonesia’s gas and LNG market.

Gastech News: Lower gas prices: Threat or opportunity for Indonesia?

Andrew Seck: The truth is that lower gas prices represent both a threat and opportunity.  On the one hand lower gas prices help stimulate demand which is good for the gas industry.  However, low gas prices on the back of low oil and coal prices is not so great for growth keeping in mind Indonesia is both a producer and consumer of all three fuels.  Much of the new demand for gas in Indonesia is based around oil replacement.  For example, Sumatra, Bali and Lombok still run on diesel generation which is inefficient but also very cheap at current oil prices.  The overall economic rationale for replacing diesel with gas natural disappears in the current low oil environment.  Likewise, whilst gas prices are low, coal prices are lower still.  As a developing country, Indonesia will likely seek to expand its economy on the back of low power prices and the potential environmental benefits of gas over coal are less important.  Most forecasts continue to show increased consumption of coal given Indonesia’s large domestic coal reserves, coal’s cost competitiveness and employment benefits. From a high-level policy perspective the Government may choose to use a period prolonged low prices for oil & natural gas as an opportunity to further reduce fuel subsidies in the overall economy.

In summary low gas prices might be a good thing itself to facilitate the industry switch from gas to oil and develop a robust and stable internal demand for natural gas on the back of which development of new gas field/LNG projects may continue, but low gas price in conjunction with a very weak oil and coal price environment might actually be more a threat than an opportunity as overall investment funds dry up.

Gastech News: What are the most critical changes and developments in Indonesia's gas market?

Andrew Seck: There appear to be moves to bring in a single gas aggregator.  Clearly with a European background we are used to competition in the market place and there is a danger that the move to a national aggregator might slow down the recent activity which has been stimulated by competition from a number of smaller private companies.  Indonesia needs an investment framework which encourages foreign direct investment and maximum involvement by multiple domestic players.  While lower gas prices should stimulate demand, it will make the economics of any gas related investment (of which Indonesia’s needs are great) more challenging hence the need to encourage private capital.  One size fits all model is unlikely to encourage the most efficient allocation of capital in the gas industry.  We are currently experiencing the low end of a multi-year commodity price cycle and Indonesia as an exporter of natural resources is being penalized.  Indonesia will naturally have less funds available from its petroleum sector to reinvest, therefore, the role of private capital via new partnerships becomes even more important to support sustainable growth in the country’s economy.

Gastech News: How can the industry reduce costs and drive innovation in Indonesia?

Andrew Seck: Maximum involvement of the private sector.

Gastech News: What are you most looking forward to at this year’s Gas Indonesia Summit, and what is your final message to our readers?

Andrew Seck: I always welcome the opportunity to visit Jakarta and meet many of the active participants in Indonesia’s gas industry. With the forthcoming spin-off of Uniper from E.ON I look forward to introducing Uniper to the marketplace as a leading European gas and power with a global commodity trading platform.

Andrew Seck will be speaking at the upcoming Gas Indonesia Summit and Exhibition about the “Evolution of gas pricing in Indonesia and dynamics of trade”. View the programme.

The inaugural Gas Indonesia Summit, officially supported by the Ministry of Energy and Mineral Resources, Indonesia (ESDM) and powered by Gastech, will take place at the Shangri-La Jakarta, Indonesia from 15 to 17 March 2016.

Subscribe to our Newsletter  & Follow us @GasInteract.

More on Indonesia’s gas and LNG: