DOWNSTREAM GAS CHALLENGES
BEHIND THE CANCELLATION
OF PGAS LNG
INFRASTRUCTURE PROJECT
The cancellation of a number of PGN's liquefied natural gas (LNG)
infrastructure projects (PGAS) has made the realization of downstream oil and
gas investment throughout 2022 far from the target.
PT Perusahaan Gas Negara Tbk. or PGN (PGAS)
recently stopped investing in the construction of a
number of projects to support liquefied natural gas
(LNG) infrastructure which had become a priority for the
downstream oil and gas (oil and gas) program in 2022.
The cancellation of a number of these projects was due
to the lack of demand for LNG on the downstream,
although gas production in several fields has tended to
experience significant growth in recent years. As a
consequence, the uneconomical project was not
continued this year. Based on the 2022 Performance
Report of the Directorate General of Oil and Gas of the
Ministry of Energy and Mineral Resources, the
realization of downstream oil and gas investment last
year was only US$1.58 billion or equivalent to Rp.23.92
trillion (assuming an exchange rate of Rp.15,158 per
US$). The downstream investment has only reached
41.61% of the forecast set at US$3.79 billion or
equivalent to Rp57.39 trillion. The low realization of
downstream oil and gas investment was due to the
cancellation of several LNG supporting projects from
PGAS, such as the construction of the East Java LNG
Onshore Storage Tank facility, the construction of the
Cilacap LNG Regasification Terminal, and the LNG
Distribution project to the PT Trans Pacific
Petrochemical Indotama (TPPI) Refinery, Tuban. "The
three PGN projects are not included in the plan to
continue in 2023," Director General of Oil and Gas
Tutuka Ariadji told Bisnis recently. In addition, there
was a significant decrease in investment realization in
the Refinery Development Master Project (RDMP)
Refinery Unit V Balikpapan project due to shifts related
to tax regulations. As a consequence, investment
realization for RDMP Refinery Unit V Balikpapan last
year was only US$137 million or around Rp2.07 trillion
from the initial target of US$1.15 billion or around
Rp17.41 trillion. Tutuka said the cancellation of the
investment in the East Java LNG Onshore Storage
Tank Facility project was due to the restructuring of the
business scheme after being affected by the pandemic
in the past 2 years. In addition, reduced demand on the
downstream side of the East Java industry has also
affected the project's investment infeasible. Meanwhile,
according to Tutuka, the construction of the Cilacap
LNG Facility Terminal has been hampered due to
Figure 2. Officers from PT Perusahaan Gas Negara Tbk inspect the Regulator System in Bogor, West Java.
Figure 1. LNG tanker off the coast of the Java Sea in Jakarta
the absence of a commercial agreement with PT Kilang
Pertamina Internasional. Later, Pertamina's subsidiary
on the refinery side plans to reduce the volume of gas
utilization. On the other hand, he said, the LNG
distribution project to TPPI was also constrained
because commercial agreements had not been
obtained with potential customers due to the increase in
the price of liquefied natural gas which is the current
source of supply. Nevertheless, he said, his ministry
continues to work to coordinate with related parties to
resolve a number of investment obstacles on the
downstream side of oil and gas. Moreover, gas supply
on the upstream side is projected to experience a wider
oversupply or oversupply in the next few years.
"Coordinating with related parties to resolve investment
obstacles experienced by business entities," he said.
Businesses have tried to ask PGAS President Director
Muhammad Haryo Yunianto for confirmation and
explanation regarding the cancellation of a number of
investments. It's just that questions via written
messages and phone calls did not receive a response
until this news was published. On the other hand,
investment realization in the upstream oil and gas
sector reached US$12.32 billion, equivalent to
Rp.186.56 trillion. This score takes 93.31% of the
forecast which is pegged at US $ 13.2 billion,
equivalent to Rp. 199.97 trillion. The investment value
on the upstream side is dominated by exploitation
activities worth US$ 8.08 billion or equivalent to Rp.
122.35 trillion. Meanwhile, the largest capital
expenditure for exploitation activities was contributed
by Pertamina Hulu Rokan with a value of US$1.45
billion, equivalent to Rp.21.95 trillion, of the target Work
Program and Budget (WP&B) of US$2.28 billion,
equivalent to Rp.34.52 trillion.
SHIFT THE FOCUS
Meanwhile, PGAS recently shifted its focus to
accelerating the construction of gas networks (jargas)
which became an assignment after the government
withdrew funding from the state revenue and
expenditure budget (APBN) for this year's household
gas connection program. Several times during
meetings with parliament, PGAS asked for help from
members of the council to push upstream gas price
incentives at the level of US$4.72 per MMBTU following
the assignment to build 1 million units of jargas per
year. PGAS President Director Muhammad Haryo said
the approval of the upstream gas price would help the
company continue its investment to carry out the
government's assignment in the future. "We are still in
the process of seeking government approval, which if
approved, PGN as Pertamina's Gas Subholding will
have more space in developing gas networks," Haryo
told Bisnis, Wednesday (15/3). Based on the 2020-
2024 National Medium-Term Development Plan
(RPJMN), construction of jargas is targeted to reach 4
million house connections (SR) either through the state
budget, independent development by BUMN and PPP
schemes. Particularly for PPP, the target for
constructing jargas is 2.5 million SR. Currently
managed Jargas reaches 982,360 household
connections (SRT). A total of 597,708 SRT came from
the State Revenue and Expenditure Budget (APBN),
while the remaining 384,708 SRT came from PGAS
investment. Meanwhile, with PGAS investment, it is
only able to reach 400,000 SRT per year. Haryo then
hopes that the remaining 600,000 SRTs can be
assisted by the government through a public-private
partnership (PPP) scheme as well as cooperation with
the private sector. On the other hand, PGAS had
reported a significant reduction in gross profit margin
due to seven industries' specific natural gas price
(HGBT) policy which was set at a maximum of US$6
per MMBTU. Based on an audit by the Financial and
Development Supervisory Agency (BPKP) until 2021,
the reduction in gross margins from PGAS gas sales
reached US$266 million or the equivalent of IDR 3.98
trillion (assuming an exchange rate of IDR 14,979 per
US$). "Implementation of HGBT from 2020 to 2024, if
all of this is done and we have served 100% of the
service, there is a potential gross margin in subholding
gas of US$784 million [equivalent to Rp. 11.74 trillion],"
said Haryo during RDP with Commission VII DPR,
Jakarta , Tuesday (31/1). Meanwhile, the average gas
sales outside the seven industries receiving HGBT are
in the range of US$ 8 to US$ 9 per MMBtu. Thus, there
is a significant difference in the selling price from the
economic price with HGBT which is pegged at US$6
per MMBTU for the seven receiving industries.