Natural gas pricing policies in Southeast Asia

Abstract

The very dynamic economies of Southeast Asia have recently been experiencing a rapid increase in energy demand. Parallel to this development, there has been an increase in the utilization of indigenous natural gas resources. This article reviews gas‐pricing policies in the region, which partly explain the rise in gas utilization. Although diverse, energy pricing policies in Southeast Asia address the common objective of enhancing domestic gas production and utilization.The article concludes that a more rational gas‐pricing policy framework is emerging in the region. In global terms, gas pricing in the region tends to converge in a market‐related framework, despite the many different pricing objectives of individual countries, and the predominance of non‐economic pricing objectives in certain countries (especially gas‐rich nations). Specifically, governments have been flexible enough to follow global trends and initiate changes in contractual agreements (pricing and profit‐sharing), giving oil companies more favourable terms, and encouraging continued private investment in gas development. At the same time, promotional pricing has also been used to increase utilization of gas, through set prices and adjusted taxes achieving a lower price level compared to substitute fuels.For an efficient gas‐pricing mechanism, refinements in the pricing framework should be undertaken, as demand for gas approaches existing and/or forecast production capacities.