Gas demand surges amid rising fuel prices

Rendi A. Witular, The Jakarta Post, Jakarta

Gas demand from industries has been on the rise since the government announced plans to gradually eliminate subsidies for fuel products in 1999, and it will reach its peak in 2005, according to an industry official.

State-owned gas company PT Gas Negara (PGN) Agus spokesman Dihardjo said demand from industries in Greater Jakarta and West Java would overtake supply by 2005 if existing supply was not increased.

He told The Jakarta Post on Thursday that the current supply of about 200 million cubic meters per day (m3/day) in these areas was more than enough to cover the demand of around 153.7 million m3/day.

But he said demand was rising fast as manufacturers looked for cheaper sources of energy amid the rising price of industrial diesel, the main fuel product used by industries to run their machinery.

The government earlier this month reduced fuel subsidies to salvage the state budget. The government has said it would completely cut subsidies on most fuel products, including industrial diesel, by 2004.

As a comparison, industrial diesel costs an average of US$5.7 per million British thermal units (MmBTU), while gas only costs an average of $2 per MmBTU.

The rising demand had in fact caused industries in Surabaya and Medan, respectively the country's second and third largest cities, to already suffer supply problems, Agus said.

He said that demand in Surabaya had reached 74 million m3/day, while supply was only around 59.8 million m3/day. Demand in Medan was about 13 million m3/day, compared to supply of 12.8 million m3/day.

In a bid to avoid future supply problems in Greater Jakarta and West Java, where most industries are concentrated, PGN is planning to connect consumers to new gas refineries in South Sumatra and Kalimantan by constructing new distribution pipelines.

The country has an enormous volume of gas resources, but has a lack of distribution infrastructure.

But industries could not easily switch their source of energy to gas because of the huge investment needed to upgrade the diesel-based machinery to gas-based equipment.

Indonesian Employers Association (APINDO) deputy chairman Djimanto acknowledged one of the most serious problem was financing.

Since the economic crisis hit the country in 1997, many companies were facing cash flow problems, he said.

"The investment is so huge that it can reach 25 to 30 percent of the asset value. Our difficulty is exacerbated as there are no banks willing to give soft loans for machinery replacement."