Impact of natural gas pricing policy for energy security and macroeconomic resilience: A literature review from global perspective

Abstract

Indonesia’s government has targeted 24% of natural gas in the national energy mix by 2050. However, one of the main problems in Indonesia’s natural gas development is the price mechanism. Unlike many countries, Indonesia’s natural gas market, including its pricing, is still heavily regulated and subsidized by the government. The low natural gas price has damaged the investment climate and slowed the natural gas development in the country. An overview of the global natural gas market evolution, as well as a comprehensive analysis of natural gas market transformation from China and Malaysia, were presented in this paper. The wider gap between supply and demand of natural gas and the increase of the LNG market in Asia have pushed China and Malaysia to reform their natural gas market into a liberalized system. This provides an insight to examine Indonesia’s natural gas pricing policies. The highly regulated market often fails to provide the actual cost of supply, leads to underinvestment, and causes a natural gas shortage in a country. Natural gas pricing policy transformation is mandatory to ensure supply stability and keep up with the global natural gas market dynamic. The transformation should be implemented gradually to give natural gas producers and end-users enough time to adjust to the regulations. In the end, gas-to-gas competition should be set as the long-term goal to allow retail competition in Indonesia’s natural gas market.