LPG price raised by 42% to Rp 4,250 per kg.
The selling price of LPG is set based on the prices of LPG sources including. Pertamina which contributes 73% to the domestic supply with a price of US$ 298 per ton, production sharing contractors contribute 17% to the domestic supply with a price of US$ 352 per tons, and imports with a price of US$ 383 per tons. The price set by Pertamina, therefore, is still lower that the prevailing prices in international market.
The price components show that Pertamina is much more efficient than other suppliers. In a bid to improve its efficiency, Pertamina reduced cost by eliminating supply point to simplify distribution, using land transport instead of sea transport, standardization of painting and maintenance of tubes.
There is no regulation in LPG trade. There is no monopoly in LPG business. The price, therefore, is dictated more by the market. Pertamina has no assignment from the government or public service obligation in the case of LPG. Its decision to raise the price is purely business. With the price hike, investors are expected to be more interested in doing business in LGP business. With the new price Pertamina will have a gross profit margin of Rp 400 per tube. Under the old price Pertamina suffer a loss of Rp 820 per kg.
Despite the price hike, the LPG selling price in Indonesia is still cheaper than in other countries such as Malaysia, Vietnam, the Philippines and Pakistan. The prices of LPG are Rp 5,773 per kg in the Philippines, Rp 5,000 in Vietnam, and Rp 6,141 in Pakistan.
LPG is used mainly by middle to high class households (69%), hotels and restaurants (13%) and manufacturing industries (18%).
Since 2002, Pertamina has four times raised the price of LPG . In July, 2002, the price was raised by Rp300 to Rp2,400 per tube, in December that year the price was raised again to Rp2,700 and in August, 2003 it was raised further to Rp2,835 per kg.
Based on a decision of the president of Pertamina No.014/C00000/2004-S3 in March 2004, Pertamina raised the price of LPG again to Rp 3,000 per kg or to Rp 36,000 per 12-kg tube. The price, however, gave no Pertamina profit.
LPG consumption 100,000 tons per month
LPG consumption rose from 83,000 tons in 2003 to 100,000 tons a month in 2004. Per capita consumption in the country is far lower than per capita consumption in Malaysia, and Thailand. Indonesia, consumption is
LPG consumption rose from 83,000 tons in 2003 to 100,000 tons per month in 2004, but LPG consumers in Indonesia is still much lower in proportion. Only 0.5% of the population use LPG as against Malaysia's 5% and Thailand's 2%.
The high increase in the consumption has prompted plan by Pertamina to build better infrastructure. With an increase of 15% in consumption annually, in 10 years, the domestic consumption will reach 4.65 million tons a year. Pertamina, therefore, needs to increase its investment to build more infrastructure such as storage tanks, LPG plants and re-gasification terminals.
The country still imports LPG to meet domestic requirement. Pertamina production facilities could not meet domestic requirement. Pertamina could produce only up to 1.2 million ton a year.
In order to cope with shortage, in 2004, Pertamina increased its imports by 100% to 400,000 tons from 200,000 tons in 2003. According to oil and gas bourse in Singapore, now LPG is a scarce product as premium gasoline. The price is high. In August, 2003, when the LPG price in the country was raised, its price in the Asian market was only US 264.5 per ton, but in February, 2004 the price surged to US$ 330 per ton. The increase in import volume required a much larger spending with the price hikes.
In January, 2004, shut down of the Balongan oil refinery caused a decline in LPG supply, while imports could not be made immediately as ship to transport the imports was not easily available. Now, however, LPG supply in some areas in the country has been normal. Shipment problem has been coped with. LPG stocks have been raised to a normal level of 6,000 tons. Consumption in the Jabotabek area is around 1,300-1,700 tons a day. Shortage has been overcome. Any shortage in some areas is caused by dealers that prefer to sell LPG to consumers directly.
Inspection by Pertamina showed that some shops have their LPG supply not from dealers. Dealers deal directly with consumers to earn a larger profit. The increase in LPG consumption will result in a cut in kerosene consumption and that will mean a cut in kerosene subsidy. Other advantages is that LPG is a clean fuel and the government will have an extra income in taxes.
Petronas to enter LPG business in Indonesia in 2005
Malaysia's oil company Petronas through PT Petronas Niaga Indonesia has been licensed to operate in LPG business in the country. It plans to build supporting facilities to start operation in 2005.
Petronas is now taking preparations to build supporting facilities including LPG terminal in Indonesia with a planned investment of US$ 20 million. The terminal will receive LGP shipment from Malaysia to be repacked in various measures. LPG is supplied from Petronas' factory in the state of Malaka or Trengganu. Supply could also come from Singapore if it is deemed more profitable. Petronas has not decided where it will build its receiving terminal, which will have a handling capacity of 2,000 to 3,000 tons per day or 720,000 to 1.08 million tons a year. LPG sold by Petronas will be packed in 12-kg, 14-kg and 50-kg tubes.
Currently Petronas has an annual capacity to produce 2.2 million tons of LPG and around 0.8 million tons are for export. Petronas is interested in expanding market to Indonesia, which is seen a highly potential. LPG consumption in Indonesia is small but growing fast. Most Indonesian household still use kerosene as fuel as it is much cheaper with the government subsidy.
However, with the cut and possible abolition of subsidy in the future, LPG consumption is expected to grow faster as it is more convenient. Apparently Petronas is interested in long term prospect. Petronas has not announced the price of its LPG but it might be slightly higher.
Petronas has already been involved in LPG business in other countries including India, China, the Philipines and Vietnam. In Malaysia, Petronas has a 42% share of LPG market, followed by Shell with a market share of 25%, Exxon Mobil 19%, Beyond Petroleum (BP) 10% and another local company Malaysia KUB with a market share of 4%.
Kaji LPG plant of Medco Group starts operation
The Kaji LPG plant of the Medco Group in the regency of Musi Banyuasin, around 100 km from Palembang started operation on Dec 15, 2004. The plant with a production capacity of 150 tons per day already launched trial operation starting on April 15. The Kaji plant is fed with associated gas from its oil wells.
Previously associated gas was flared. The plant could process up to 20 million cubic feet per day (MMSCFD) of associated gas from Kaji oil and gas field near the Kaji LPG plant.
The plant will be able to turn out 150 tons of LPG per day or equivalent to 20 trucks. Until Dec 5, it already processed 3,100 MMSCFD of associated gas to produce 18,406 tons of LPG, 70,830 barrels of condensate and 2,255 MMSCFD of gas residue (lead gas).
The production is sold to industries including 100 tons of LPG to Pertamina to be distributed in Palembang and Plaju, South Sumatra. The gas residue will be sold including to the Talang Duku gas fired power plant.
Table--1 LPG price developments in Indonesia, 2002-2004 Period Price/kg Jul 2002 2.400 December 2002 2.700 August 2003 2.835 2003 2.850 March 2004 3.000 December 2004 4.250 Source: Pertamina Table--2 Indonesian consumption of LPG, 2003-2004 Consumption Year (MT)/month 2003 83,000 2004 100,000 Source: Pertamina