Upstream Gas Price Can Be US$ 3.82 Per MMBTU

The Ministry of Energy and Mineral Resources (ESDM) stated that gas prices could drop to US$ 3.82 per MMBtu if the state did not take non-tax state revenues (PNBP) and income taxes (PPh) from gas trading. Malaysia has done this so that gas prices can come down to the consumer level.

The Directorate-General for Oil and Gas at the Ministry of Energy and Mineral Resources, I Gusti Nyoman Wiratmaja Puja, explained that there are two types of gas prices, namely the share of the revenue for the Cooperation Contract Contractors (KKKS) and the share for the state.

For the KKKS part, we must respect the applicable contract. According to him, the most flexible to be reduced is the share for the state. Namely, from PPh and PNBP, they only ask for approval from the Coordinating Ministry for the Economy. 

This method can reduce the gas price which is currently US$ 10 per MMBTU for end users. However, state revenues can also drop drastically. Malaysia has used that method, not taking part of the state. If the government does not take PNBP, the price of piped gas upstream could be US$ 5.01 per MMBtu.

But the state lost revenues of up to US$ 544 million or Rp. 7 per year (exchange rate of Rp. 13,000 per US dollar). If the state does not take all of the state's share including PPh, the gas price upstream will be US$ 3.82 per MMBtu. However, the government must lose US$ 1.26 billion or around Rp. 16.4 trillion per year. But there is another way, namely to reduce transmission and distribution costs by US$ 2.4 per MMBtu.

Kontan, Page-14, Tuesday, Oct 25, 2016

Downstream Industry Threatened Disruption

    Gas supply for the downstream industry in Sidoarjo Regency, East Java, is in danger of being disrupted if Lapindo Brantas Inc continues to stop gas production activities from the Tanggulangin well 5. Production activities have stopped since the leakage of the pipeline connecting the well to the main pipe on Saturday (15/10) ).

"The leaky pipe replacement has actually begun. However, not until the repair was completed, the activities were stopped because the situation around the location was not conducive, ”said Vice President of Lapindo Brantas Inc Hesti Armi Wulan.

    Lapindo hopes that the situation around the site will immediately improve so that the repair of the leaky pipe which has been suspended since last Friday can be continued. The situation at the location was not conducive because there were differences of opinion from local residents. 

    There are pros and cons. The leaking pipe was planted about 2 meters in the riverbed in Kalidawir Village, Tanggulangin District. The pipe, which was planted in 1999, is suspected of leaking at the connection. The function of this pipe is to flow gas production from the Tanggulangin Well (TGA) 5 with a volume of about 3 million cubic feet per day to the main pipe.

    From the main pipe, the gas is then channeled to supply the needs of the household gas network and the downstream gas industry which supplies gas for the manufacturing industry. For the needs of the Gas Network, namely 3,850 house connections, it is guaranteed that it will not be disturbed because Lapindo will immediately divert supplies from other wells, namely TGA 1 and TGA 2. 

    Hesti said the Lapindo gas pipe leak occurred at night and was first discovered by the residents. The leak is characterized by the appearance of gas bubbles on the surface of the river water.

    In addition, there were also bursts of water and mud from the riverbed. The residents then reported the incident to the Lapindo Brantas field officer. The report was followed up by Lapindo Brantas production operator, Chusnul Maab, by checking the gas pressure in the TGA 5 well. 

    As a result, gas pressure from the well was reduced, indicating a leak in the pipeline network. Sidoarjo Regent Saiful Ilah, who was met at the Delta Wibawa Hall, promised to immediately communicate with Lapindo Brantas, including meeting and having a dialogue with residents to build a conducive situation.

    This residents' concern is justified because the Lapindo gas pipeline leak is not the first time this has happened. This case occurred in early March 2015 in Kedungbanteng Village, which is located adjacent to Kalidawir Village. 

    The pipe leak is suspected to have caused a fire to erupt at the residents' houses. Sidoarjo Resort Police investigators are investigating the cause of the problem and whether the leak was the cause of the fire in the residents' homes. This concern got worse after it was discovered that Lapindo Brantas had not detected the pipe leak.

The pipe leak in Kedungbanteng Village and Kalidawir Village was discovered by the residents, not by Lapindo field officers. Hesti said the gas leak occurred smoothly so that it was not detected by the company's security system. The gas leak does not directly affect the safety valve in the TGA 5 well so that the Well operation does not automatically shut down. Must be turned off manually.

Kompas, Page-23, Tuesday, Oct 25, 2016

Waiting for Gas Price

The assessment that states that gas prices in Indonesia are higher than in other countries is not a new thing. What is new, this time there is a step from the government to lower the price of industrial gas. The new gas price formula for the industry will be implemented in early 2017. Currently, the gas price is US$9.5 to US$11 per million metric British thermal units.

Then, is it possible to lower gas prices? The gas business is indeed complex, from upstream, namely gas drilling wells, to downstream, namely gas users, both gas user industries and the community. Currently, most of the gas is used for power generation and the fertilizer industry. Gas prices can be reduced upstream.

For example, reducing the state's share in production sharing contracts especially contracts related to the exploitation of wells that have long been producing and profitable. It is very important to look at the distribution costs of the gas distribution company. 

The extent to which the profit margin or trading margin taken is reasonable and not too high an impact on the selling price to the industry. For example, the price of gas from suppliers is US$5.5 per million British thermal units (MMBTU).

However, the selling price to users can reach 8 US dollars to 9 US dollars per MMBTU. Large pipeline investment may not be followed by large gas pipeline utilization so that costs are borne by consumers or gas user industries. For this reason, government regulations are needed to limit the trading margin. 

In certain cases, gas prices are indeed not easy to reduce because of the longer supply chain. For example, delivery of liquefied gas by ship, regasification process, and distribution. However, not being easy does not mean can not be lowered.

There is still a cost component that can be evaluated and reviewed. For example, costs or tariffs for distribution through pipes determined by BPH Migas or other fees that may be collected. Tax incentives, such as tax breaks (tax allowances), can also be a factor that can drive prices down. 

Apart from these costs, investment efficiency in gas distribution networks or pipelines and utilization of distribution pipelines is also important for investors, both state-owned and private companies to pay attention to.

This is one of the reasons the government, through the Ministry of SOEs, established the holding company PT Pertamina and PT Perusahaan Gas Negara (Persero) Tbk. The decline in gas prices is believed to have a major impact on the industry.

Kompas, Page-17, Tuesday, Oct 25, 2016

Cut State's Allotment, Industrial Gas USD 3.82

There is still room to reduce industrial gas prices. The government must give up the state's share of income tax (PPh) and non-tax state revenues (PNBP) at the upstream level to be cut.

The Directorate-General of Oil and Gas at the Ministry of Energy and Mineral Resources, Wiratmaja Puja, stated that the low gas price demands that the share of the government and the share of the cooperation contract contractors (KKKS) be reduced. Pruning the KKKS portion is difficult because it is bound by a contract.

Therefore, the Ministry of Energy and Mineral Resources proposes to cut PPh and PNBP to the Ministry of Finance and the Coordinating Ministry for the Economy. This method is able to reduce gas prices which currently exceed USD 10 per MMBTU for end users. As a result, state revenues fell drastically. 

Wiratmaja explained that Malaysia also did not take the state's share so that gas prices could be reduced to USD 6.6 per MMBTU. If the Indonesian government decides not to take PNBP upstream, the price of industrial gas can be reduced to USD 5.01 per MMBTU.

However, the state has the potential to lose revenue of USD 544 million or Rp. 7 trillion per year. If the government does not take PPh and PNBB the price of gas upstream can immediately drop to USD 3.82 per MMBTU. As a result, the government must be willing to lose state revenues of USD 1.263 billion or Rp. 16.4 trillion.

The potential for reducing KKKS income in the form of capital expenditure (CAPEX) and contractor share is not easy to do because it is constrained by the existing contract. However, there is the potential to reduce transmission and distribution costs by up to USD 2.4 per MMBTU. Efficiency in the transmission is done by trimming depreciation.

The distribution sector demands the elimination of margin traders to be fairer. Another efficiency potential is operating expenses (OPEX). Pertamina plans to use PT Badak NGL's assets to support the New Grass Root Refinery (NGRR) project in Bontang, East Kalimantan. 

The location of the Pertamina subsidiary which operates the LNG plant is adjacent to the new oil refinery. Pertamina's Director of Processing and Petrochemical Megaprojects, Rachmad Hardadi, stated that Badak NGL's facilities that can support NGRR are 21 units of high-quality boilers, power plants, and storage tanks. The use of Badak assets is also related to land.

That way, Pertamina does not need to acquire land, thus saving project time. Pertamina can start the project from point 5 on a scale of 0-10. The construction of the Bontang NGRR with a capacity of 300 thousand barrels per day (BPD) is still waiting for the appointment of a partner by the International Finance Corporation (IFC) as a government consultant.

The selection of partners has been accelerated to the end of 2017. Pertamina is preparing a bankable feasibility study (BFS) which is targeted to be completed in 2017. Another Pertamina project in Kalimantan is the Balikpapan Refinery Development Master Plan (RDMP), which is targeted to be completed in 2021. 

In 2019, the refinery being built costs USD 2 .6 billion has been able to produce Euro 2 standard fuel. In that year, the processing capacity increased from 260 thousand barrels per day to 360 thousand barrels per day.

Jawa Pos, Page-6, Tuesday, Oct 25, 2016

Shutdown the Well, Lapindo Guarantees Safe Gas Supply

    Lapindo Brantas Inc (LBI) guarantees that the natural gas supply for the Gas Network (Gas Network) program will not be interrupted after the manual shut-in of the Tanggulangin well (TGA) 5 was due to leaking of the distribution pipeline to the gas plant at TGA-3, Saturday ( 15/10) ago. Gas Network supply is diverted directly from the TGA-1 and TGA-2 wells.

"Even though there are wells that have to be shut-in, the supply for the Gas Network program has not been disrupted. We supply gas from other wells. We are currently preparing to repair the leaky pipe so that the TGA 5 well will start producing again, ”said Vice President Operations LBI, Harsa Harjana.

    This was emphasized by Lapindo after residents were worried that the gas supply for the Gas Network would be disrupted. As is known, Pertagas is completing the Gas Network program for around 3,850 house connections (SR) for residents of Tanggulangin, Sidoarjo. 

    Gas for the Gas Network program is taken from the Lapindo well at Tanggulangin. A leaky pipe is under the river in Kalidawir Village. The provisional suspicion is that the leaking pipe is at the end of the pipe under river water, to be precise at a depth of 2 meters from the river bed.

It is suspected that the leak was due to the accumulation of water carried by the gas in the "U"-shaped section of the pipe. Lapindo will not repair the old pipe in the river but will replace it with a new pipe and move its position up the river. The pipeline leak occurred last Saturday (15/10), at around 22.00 to be precise. At that time Marsam, a resident of Kalidawir, saw a bubble and water coming out with mud from the river.

"Because the leaking pipe is at the bottom of the river, a bubbling appears and water bursts with mud from the riverbed carried by gas looking for a way out.

    Receiving the report, Chusnul Manab, the Lapindo Production Operator, immediately checked the pressure of the TGA 5 well. From the data in the Gas Plow Computer, it can be seen that the gas pressure has indeed dropped, indicating a gas pipeline leak.

    Because of that, shut-in was immediately carried out at the TGA 5 well. In less than 30 minutes the gas flow could be stopped to minimize the risk. At around 23.00 the bubble and water mixed with grains had stopped completely.

"Lapindo would like to thank Mr. Marsam who was immediately responsive in reporting so that the pipeline leak could be handled immediately. This shows that communication between Lapindo and residents has been well established. At that time Lapindo Brantas was indeed sending 10 MMcsf of gas as requested by Pertagas Niaga. It should have been 570 Psig at that time, but the pressure left on the screen was 278 Psig.

Harian Bangsa, Page-12, Tuesday, Oct 25, 2016

The utilization of Tangguh Gas is still being studied

PT Pupuk Indonesia (Persero) is still reviewing the utilization of gas from the Tangguh Train III refinery which will be used as raw material for fertilizer and petrochemical factories in Bintuni Bay, West Papua.

Tangguh Train III

Head of Communications for the Indonesian Fertilizer Corporation, Wijaya Laksana, said that the plan to build a fertilizer factory in Bintuni Bay is still in the discussion stage. According to him, the current supply of urea-type fertilizer is already in excess so the construction of a new fertilizer factory is not appropriate. 

BP

To utilize gas from the Tangguh Train III refinery in West Papua, which is operated by British Petroleum (BP), the government supports businesses to build a fertilizer and petrochemical factory in Bintuni Bay.

According to him, PT Pupuk Indonesia is still discussing with the Ministry of State-Owned Enterprises (BUMN) and the Ministry of Industry regarding gas-based industrial projects other than fertilizers such as petrochemicals. According to him, the plan to build a gas-based factory will still be carried out. However, his party is still waiting for the results of the study conducted regarding what factory will be built to utilize gas from Tangguh.

He explained that the construction of a fertilizer factory requires an investment of Rp. 8 trillion, as was done at the Kaltim-5 Bontang Factory, East Kalimantan. The factory has a production capacity of 850,000 tons of ammonia and 1.15 million tons of urea per year.

The development of the petrochemical and fertilizer industry in Bintuni Bay will use an area of ​​2,344 hectares. The existence of the industry is expected to get an investment of up to US$ 10 billion. Wijaya said the gas supply for the petrochemical plant in Bintuni Bay can come from any oil and gas field. However, the gas price that can be received by petrochemical plants is around US$ 3 per MMBtu. He said that his party did not know about the plan to exchange gas allocations or swaps from Tangguh Train III to the Kasuri Block.

Blogger Agus Purnomo in SKK Migas

According to him, there has been no formal offer related to the gas swap. Head of Spokesperson for the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) Taslim Z. Yunus said the gas swap option was carried out to accelerate gas development from the Kasuri Block operated by Genting Oil Kasuri Pte. Ltd.

The Kasuri Block

The Kasuri Block will start producing gas after three years of the Plan of Development/POD phase I being approved. Vice President Jusuf Kalla asked for efficiency efforts from all lines to realize the decline in industrial gas prices which is expected to take place starting December 2016.

According to him, President Joko Widodo's instructions to conduct a study on the reduction in gas prices within two months must be immediately realized through efficiency on all fronts by related parties. It certainly aims to increase the competitiveness of the national industry with other countries. The way, starting from the efficiency of the production process in the country, the distribution process, to the policy of traders who are advised not to be too many.

The statement was made as a follow-up to the President's instruction to push the price of industrial gas to no more than US$6 per MMBtu. As stated in Presidential Regulation Number 40 of 2016 concerning Natural Gas Price Determination, as many as seven industries are entitled to cheap gas prices, namely fertilizers, petrochemicals, oleochemicals, steel, ceramics, glass, and gloves.

Bisnis Indonesia, Page-30, Tuesday, Oct 25, 2016

Discussion Begins January

Discussion on the revision of Law Number 22 of 2001 concerning Oil and Gas will begin to be discussed early next year because it needs to go through a synchronization process within the House of Representatives (DPR).

“The revision of the Oil and Gas Law Plan (RUU) is still being discussed at Commission VII [DPR]. The mechanism is probably December until the Legislative Body of the DPR, if it reaches the Legislative Body, it means that all factions have agreed," said member of Commission VII DPR Satya Yudha.

According to him, after the draft arrives at the Legislative Body, it will then be submitted to a plenary meeting so that January can begin to be discussed. After that, a working committee or a special committee for the revision of the Oil and Gas Law will be formed.

“After that, we can start discussions with the government. Satya added that the official discussion of the oil and gas bill depends on the Legislative Body of the DPR.

If using the special committee mechanism, other commissions in the DPR can participate in discussing the revision of the regulation. If using the working committee mechanism, only Commission VII will discuss the revision of the Oil and Gas Law.

“And that mechanism has not been chosen at this time. Previously, Deputy Minister of Energy and Mineral Resources, Arcandra Tahar, said that in general his party would continue the programs that were already underway. Several tasks, such as the completion of revisions to the Mineral, Coal, and Oil and Gas Laws will be a priority in fixing the ESDM sector. 

Several parties have urged the Government and the DPR to immediately determine the deadline for enacting the proposed Law on Oil and Gas to become a law in order to improve the investment climate and at the same time encourage the growth of the Indonesian economy.

The Executive Director of the Reforminer Institute, Komaidi Notonegoro, hopes that the government and the DPR will immediately determine the completion of the discussion on the revision of Law Number 22 of 2001 concerning Oil and Gas. 

Discussion on the revision of the Oil and Gas Law has been going on for eight years. He suggested that if the discussion on the revision was slow, the government should issue a Government Regulation in Lieu of Law (PerPPU). The same thing was expressed by an energy expert from Trisakti University, Pri Agung Rakhamanto, who stated that there must be a target for completing the revision of the Oil and Gas Law.

Bisnis Indonesia, Page-30, Tuesday, Oct 25, 2016

Oil Prices Fall

On Monday (Oct 24) trading at 16:38 WIB, the price of West Texas Intermediate (WTI) oil for the December 2016 contract fell 0.03 points or 0.06% to US$50.77 per barrel. The price of the Brent oil contract in December 2016 fell 0.04 points to the US $ 51.74 per barrel. In a report, ANZ Bank said comments that Iraq did not join the OPEC agreement to cut production put crude prices under pressure.

The plan is for OPEC to decide on a supply cut agreement at a meeting on November 30, 2016, in Vienna, Austria. Previously at a meeting in Algeria on September 28, OPEC planned to reduce production by 700,000 barrels to 32.5 million-33 million barrels per day. This figure is down from the organization's oil industry performance last month which was 33.39 million barrels per day. Iraq produces 4.77 million barrels of crude oil per day, with exports reaching 3.87 million barrels per day.

Falah al-Amri, head of marketing for Iraq's state-owned oil company, said it would not reduce oil production and sales. Iraq's Oil Minister Jabba Al-Luabi also said his country should be exempt from production cuts because it is still involved in a war with militant groups.

Previously, OPEC suggested countries that were free from supply cuts were Iran, Nigeria, and Libya. Oil markets were also under pressure after the number of US oil rigs rose last week, the first double-digit increase since August. A stronger dollar also undermines demand because it makes purchases more expensive for countries with other currencies.

On the demand side, Japan's crude oil imports fell 4.6% in September 2016 year on year (YoY) to 3.27 million barrels per day. Japan is the fourth-largest oil consumer in the world at 4.15 million barrels per day in 2015. Despite lower prices, some analysts say the oil market has made a positive move after two years of surplus supply. This condition makes oil fundamentals will balance each other in terms of production and consumption.

Barclays Bank said the market equilibrium will move more quickly to a small deficit in QII-IV/2016. Then, the deficit will widen significantly in the next year. Ric Spooner, Chief Market Analyst at CMC Markets, said the market was still waiting for significant results from the OPEC meeting in late November. In the short term, the price will move around US$ 50 per barrel but risk a decline. William Simadiputra, DBS Group Research Analyst, said that the oil and gas sector is still facing difficult times.

The fall in oil prices that has occurred since mid-2014 has forced companies to cut capital spending at a time of high production costs. Both of these factors could be risks that threaten the recovery in the oil and gas industry in the long term. Low oil prices make it difficult for companies to raise investment funds.

Currently, oil prices have shown an upward trend to US$45-US$50 per barrel, higher than the initial estimate of US$43 per barrel. In the next year and early 2018, oil prices are estimated to move in the range of US$ 50-US$ 60 per barrel and US$ 60-US$ 65 per barrel, although it is not easy for the oil and gas industry sector to reverse this situation.

Bisnis Indonesia, Page-16, Tuesday, Oct 25, 2016

Fertilizer Factory Needs Cheap Gas

The decision to reduce the price of raw material gas for the fertilizer industry shows the government's great concern for the agricultural sector. In an effort to achieve food security, the government has placed the fertilizer sector as a strategic industry. 

Currently, the fertilizer industry has been affected by the decline in world gas prices. However, the price of gas for the fertilizer industry did not immediately fall. This is because the fertilizer industry in Indonesia buys gas with a take or pay (ToP) mechanism, namely the minimum payment for gas in 1 year during the contract period even though the gas usage is below the minimum amount.

President Director of PT Pupuk Indonesia, Aas Asikin Idat said, "We thank President Jokowi for his policy of lowering gas prices. This policy coincided with conditions that were experiencing difficulties due to the decline in industrial competitiveness as a result of high production costs due to high gas prices. 

The current high price of gas makes Indonesia's urea production unable to compete because the production cost of urea in Indonesia has already exceeded the international market price. Based on the latest Fertecon data, the purchase price of gas for the fertilizer industry in Indonesia ranks 5th most expensive out of 33 other fertilizer producing countries.

Currently, the average price of gas for fertilizer factories in Indonesia is US$ 6.26 per MMBtu, while the average world gas price is currently only around US$ 3 per MMBtu. The decline in gas prices has made the world's fertilizer factories operate optimally and as a result, there is an oversupply of fertilizer in the world. If the gas price can be lowered to a level of US$ 3, the fertilizer industry will be able to compete again with imported urea fertilizer, which is currently starting to oversupply the market in Indonesia.

Media Indonesia, Page-18, Monday, Oct 24, 2016

Pertamina Accelerates Balikpapan Refinery Expansion

    PT Pertamina is accelerating the implementation of the Refinery Development Master Plant (RDMP) for the Refinery Unit (RU) or Refinery V Balikpapan, East Kalimantan stages I and II in 2019 and 2021.

PT Pertamina

    According to Pertamina's Director of Mega-Processing and Petrochemical Projects, Rachmad Hardadi, this project requires funds of US $ 2.6 billion or IDR 34 trillion. The refinery construction is for long-term investment, said Rachmad. 

    According to Rachmad, the Balikpapan oil refinery production capacity in the first phase of the RDMP project will be increased from 260 thousand barrels to 360 thousand barrels per day. In 2019, the refinery will manufacture fuel oil to the Euro 2 standard.

    The second stage of the RDMP for the production of quality fuel with Euro 4 and Euro 5 standards is expected to materialize in mid-2021.

"In accordance with the needs of the community, the quality of the fuel will be improved. Funds for the development of this refinery come entirely from Pertamina. According to Rachmad, the RDMP RU V Balikpapan project has entered the demolition stage of several warehousing facilities. Pertamina is also building housing in the form of 24-floor apartments for employees. This apartment will be occupied by employees who initially live in the Parikesit housing estate, Balikpapan. However, they will be evicted into warehouses and workshops, ”.

Fadel Muhammad

    Deputy Chairman of the Energy Commission of the House of Representatives, Fadel Muhammad, stated that it is time for Indonesia to become independent in producing fuel for domestic needs. According to him, local workers are capable of producing international standard fuel. 

Saudi Aramco

    Pertamina will partner with foreign companies, such as TX Nippon Oil and Energy and Saudi Aramco. However, it was decided that Pertamina would implement it only.

Koran Tempo, Page-9, Monday, Oct 24, 2016