Countering the Impact of Soaring Oil and Gas Prices

Prices of world crude oil and gas commodities jumped significantly due to increased demand, one of which was triggered by the recovery of economic activity in a number of countries.

DOKUMENTASI SKK MIGAS

Illustration: Management of upstream oil and gas or oil and gas in the Rokan Block, Riau.

JAKARTA, KOMPAS — The government needs to counter the impact of the recent increase in the prices of crude oil and natural gas on the global market as the surge in the prices of the two commodities could affect the allocation of energy subsidies in Indonesia. There should be a long-term program to cope with the oil and gas impacts.

According to Bloomberg, the price of Brent crude oil reached US$78.43 per barrel on Wednesday afternoon (29/9/2021). On Tuesday, the Brent crude price surged to $80 per barrel, the highest since 2018. Meanwhile, natural gas prices were recorded at $5.69 per million British thermal units (MMBTU).

The secretary general of the Oil and Gas Companies Association (Aspermigas), Moshe Rizal, said the recent increase oil and gas prices was still “normal”. The increase in the prices of the two commodities would not last for long time as it was not only driven by supply and demand factors but also due speculation following rising tensions in the relations between the United States and China as well as the United States and Russia. The world\'s geopolitical atmosphere also affected oil and gas prices.

“The increase in energy commodity prices also has the potential to increase domestic energy subsidies. Therefore, the anticipation of the Indonesian government should be based on long-term planning. Imports of LPG [liquefied petroleum gas] can be reduced by raising the utilization of the natural gas resource through the construction of massive natural gas network infrastructures," said Moshe when contacted on Wednesday.

Also read:

> Oil Prices and Pandemic Resurgence

> The Oil and Gas Upstream Regime Dualism

The current increase in energy commodity prices, including coal, is partly due to the economic recovery in a number of countries and the resumption of the operation of various industrial sectors, which have led to increase in the demand for energy commodities. Energy demand is also increasing because a number of countries are entering the winter season.

A lecturer at the School of Earth and Energy Technology of Trisakti University, Jakarta, Pri Agung Rakhmanto, was of the opinion that there would be no instant solution in coping with the impact of the increase in oil and gas prices. In the upstream sector, there had to be an effort to increase national oil and gas production, while on the downstream side, there was a need to accelerate energy diversification and conversion to non-oil and gas sources and to control consumption so that oil and gas imports could be reduced, he said.

"There is actually a practical short-term solution, but it is only limited to reducing fiscal pressure in the form of the subsidy cost in the APBN [state budget], namely by adjusting the selling price of fuel oil [BBM] domestically. However, this step is not popular and its economic and sociopolitical impact should be taken into consideration," said Pri.

KOMPAS/TOTOK WIJAYANTO

Online motorcycle taxis queue to fill fuel at the Abdul Muis gas station, Central Jakarta, Tuesday (14/4/2020).

Regarding the possibility of increasing gasoline prices, a member of House of Representatives Commission VII from the Gerindra Party, Kardaya Warnika, said that such a measure could, indeed, reduce the fiscal burden. However, it would lead to an increase in the popular financial burden amid the economic disruption of the Covid-19 pandemic. He hoped the government would be careful in determining the fuel price policy.

“The fluctuation of global crude oil and natural gas prices is similar to a cycle that keeps repeating itself. Therefore, the Indonesian government must have a long-term strategy in coping with it. For example, the government needs to map out economic sectors that still require oil and gas. As another example, the government should immediately optimize the role of renewable energy so that the country will no longer depend on fossil energy," said Kardaya.

Deficit

Based on data from Statistics Indonesia (BPS), in the January to June period of this year, Indonesia\'s oil and gas trade balance suffered a deficit of nearly S$5.7 billion. The deficit has been in place since January, during which the amount reached $668 million, and it fell to $443 million in February 2021. The deficit rose again the following month to $1.37 billion.

The deficit in the oil and gas trade continued in the following months. In April 2021, the deficit reached $1.06 billion, in May 2021 at $1.09 billion and June at 1.06 billion.

Based on the 2022 State Budget estimates, the government allocates Rp 77.55 trillion for fuel and 3 kilogram LPG tank subsidies and Rp 56.48 trillion for electricity subsidies. In particular, the amount of the diesel fuel subsidy is set at Rp 500 per liter.

The government plans to limit the distribution of 3 kg LPG tanks starting next year so that only the targeted recipients can buy the gas at the subsidized price.

The subsidy that has received public scrutiny is the 3 kg LPG tank subsidy, because the distribution mechanism for subsidized LPG is open for all. Anyone can buy the subsidized LPG, even though there is a notice on LPG containers saying “Only for the Poor". The government plans to limit the distribution of 3 kg LPG tanks starting next year so that only the targeted recipients can buy the gas at the subsidized price.

Regarding the distribution of subsidized LPG, the deputy for population and manpower at the National Development Planning Agency (Bappenas), Pungky Sumadi, said the government would change the subsidy scheme from commodity-based to recipient-based. The new subsidy scheme is to be based on integrated social welfare data (DTKS), which is currently being revised by the Social Affairs Ministry.

“The transformation is carried out carefully by considering the readiness of the database. The DTKS will later be integrated with the Staple Food Card. Later, the recipients of the Staple Food Card will be able to buy the 3-kg LPG [at the subsidized price],” he said (Kompas, 3/9/2021).

This article was translated by Hendarsyah Tarmizi