Government to subsidize domestic gas sales

The government has decided to subsidize the sales of gas to local industries as part of the government's latest energy policy to increase the use of gas and coal for domestic consumption, Kompas reported on Friday.

Minister of Energy and Mineral Resources Purnomo Yusgiantorto said in Jakarta on Thursday that the decision to give a subsidy was part of the government's program to increase the use of gas for the domestic market.

"It is clear stated in the latest energy policy that the use of gas for domestic market is the main priority," he said. "It is therefore important for the government to get involved if a gas producer and its buyer could not reach agreement due to price differences such as by providing subsidy," he added.

Local gas buyers often face problem when negotiating the gas prices with their gas suppliers which mostly peg their price with the prices in the LNG in the international market. At present, the gas sales to industrial user is between US$4.5 and US$5 per MMBTU, far lower than the price of LNG which reaches between US$7 and US$8 per MMBTU.

As the consequence, the government would reduce the gas supply for LNG producers. "If the Badak LNG Plant in East Kalimantan faces a shortage of gas supply due the policy, the government will seek alternative supply from outside of the area," he said. (*)