Indonesia's PGN forecasts natural gas sales to rebound in 2018

10/18/2017

JAKARTA (Reuters) — Indonesia's state-owned gas company, Perusahaan Gas Negara (PGN), the country's biggest gas utility, expects a slight increase in gas sales in 2018 after years of stagnant demand growth in Southeast Asia's largest economy.

"Consumption maybe for the past five to ten years has been at a constant volume. There has been no significant growth in the domestic (gas market)," the utility's commerce director, Danny Praditya, said on Wednesday.

This year PGN expects to gas sales of between 700 BBtu to 750 BBtu of gas per day, down by as much as 13% from the 803 BBtu per day it sold in 2016, Praditya told Reuters in an interview.

Next year, however, PGN expects to see gas sales growing by up to 3% as a result of gains from the power, metal processing, petrochemicals and paper industries, he said, without providing specific demand figures.

PGN supplies about 75% of Indonesia's retail demand for natural gas through its distribution network, and about one-fifth of the country's natural gas demand overall.

The largest portion of the utility's gas goes toward electricity generation.

PGN has come under pressure from industries and the government to reduce gas prices, amid efforts to keep manufacturing and power generation costs down.

The expected declines in 2017 gas sales were partly a result of efforts by the state power utility Perusahaan Listrik Negara (PLN) to minimize subsidies, Praditya said.

"PLN is now really enforcing the merit system," he said, referring to coal beating gas on a cost-per-kilowatt-hour basis.

As a result, PGN's floating LNG storage and regasification unit (FSRU) in Lampung, off the coast of Sumatra, was idle for much of 2017, he said.

In the longer term, PGN expects demand for gas for power to be "prioritized" because of its ability to meet fluctuating and volatile electricity demands.

The company is eyeing growth opportunities in eastern Indonesia, where primary energy supply could be replaced with gas, Praditya said.

However, to avoid inefficiency and promote long-term growth Indonesia needs to formulate a gas development master plan involving all stakeholders, similar to its 10-yr development plans for electricity, he said.

"We are being bullied that the industry cannot compete with other countries because of gas prices, but that's not necessarily true," he said, referring to factors other than energy costs contributing to industrial competitiveness.

"We mustn't let the diagnosis be wrong and then consume the wrong medicine. At the end of the day the industry will not be sustainable."

Reporting by Fergus Jensen and Wilda Asmarini; Editing by Christian Schmollinger and David Evans