Economist urges middle ground on industrial gas prices amid supply chain pressures

Economist Abra Talattov from the Institute for Development of Economics and Finance (Indef) has urged the government to find a middle ground that can maintain industrial competitiveness while ensuring the sustainability of the gas supply chain amid price rises felt by some industrial customers. Abra stated that the increase in LNG prices must be viewed objectively, as it is inseparable from global energy market dynamics and the condition of domestic gas supply, which has continued to decline in recent years. “The rise in LNG prices at the industrial consumer level does not occur in a vacuum. There is significant pressure from the global energy market due to the geopolitical crisis, so the upstream acquisition cost of LNG has also increased. Therefore, this issue needs to be viewed holistically from upstream to downstream, not just from the final price received by industry,” Abra said in a statement in Jakarta on Thursday. According to him, the supply of pipeline gas for industrial needs continues to fall. In 2024, pipeline gas supply was recorded at around 479 BBTUD, then fell 16 per cent to around 400 BBTUD in 2025. The decline continues in 2026 to around 327 BBTUD, or a drop of about 18 per cent. Besides being influenced by the natural decline in gas production, this condition is also related to the gas allocation priority policy, which places the industrial sector below electricity needs. As a result, the gap between pipeline gas supply and industrial demand is widening, making LNG one of the alternatives to maintain the continuity of energy supply. He explained that LNG has a longer supply chain compared to conventional pipeline gas. LNG must go through production, liquefaction, shipping, storage and regasification, transmission, and distribution processes. Meanwhile, pipeline gas generally only goes through production, transmission, and distribution stages. Nevertheless, Abra reminded that the impact of rising LNG prices on industry must remain a government concern. According to him, rising energy costs can increase production costs, reduce factory utilisation, decrease industrial competitiveness, and potentially impact the workforce. He also assessed that the position of gas distribution business entities needs to be understood proportionally. This is because midstream and gas trading players do not have full discretion in determining prices, as various price components have been regulated within the corridor of government regulation. According to Abra, the rise in LNG prices is not only happening in Indonesia but is part of regional and global energy market pressures. Therefore, he encouraged the government to formulate a solution capable of accommodating the entire gas value chain, from upstream producers, infrastructure providers, national gas aggregators, midstream players, to end-user industries. He proposed several steps the government could take, including optimising domestic LNG prices at the upstream level, accelerating the reallocation of gas supply for domestic needs, reviewing LNG export swap schemes, thoroughly evaluating the specific natural gas price policy, preparing temporary mitigation schemes for affected industries, and encouraging the diversification of industrial energy sources. In addition, Abra assessed that Indonesia needs an integrated national gas infrastructure roadmap up to 2035, covering the construction of the Kalimantan–Java pipeline backbone, strengthening inter-regional connectivity, developing LNG and regasification terminals, and optimising existing pipeline networks. Previously, Minister of Energy and Mineral Resources Bahlil Lahadalia said the government is currently seeking a middle ground with stakeholders to address the impact of rising industrial gas prices. “Well, that is what we are currently looking for a way to mediate. So that industry is not burdened with high prices for industrial gas,” Bahlil said when met in Jakarta on Thursday. “I have already held meetings with them. With the associations, with the labour unions as well. Now I am in a technical meeting with Pertamina to find an ideal figure so that our industry can remain viable,” he added. According to Bahlil, the rise in industrial gas prices is likely to impact gas users who do not receive the specific natural gas price facility. “There is a gas price increase in several non-HGBT industries. Because there are two types of gas, HGBT, which is actually subsidised by the state. Meanwhile, non-HGBT is the general price,” Bahlil said. He stated that some wells in the regions, particularly in West Java, are indeed experiencing a decline in production. To cover the supply shortfall resulting from this production decline, industries are then seeking new sources through Liquefied Natural Gas from other regions, so logistics costs also affect the final price of the industrial gas.