Gas Pricing and Financing PT Pertamina (Persero) Jln. Medan Merdeka Timur No.1A Jakarta 10110 Telp (62-21) 381 5111 Fax (62-21) 384 6865 http://www.pertamina.com Gigih Prakoso– Pertamina Jakarta, 28 January 2015
Gas Pricing and Financing
PT Pertamina (Persero)Jln. Medan Merdeka Timur No.1A Jakarta 10110
Telp (62-21) 381 5111 Fax (62-21) 384 6865http://www.pertamina.com
Gigih Prakoso– Pertamina
Jakarta, 28 January 2015
Gas will become the main oil substitution to fulfill Indonesia’s growing energy needs
Indonesia’s National Energy Mix (Mboe)2010-2025 shift – Perpres 5/2006
1,138
59%
Oil
Gas
Renewable
2,785
24%
23%
17%
� Energy demand is expected to grow at an increasing rate following Indonesia’s economic growth and population
� Gas consumption will increase due to:
- Diesel and fuel oil substitution on power & industrial sector
Overview of Gas in Indonesia
1
Source: Development Target of Renewable Energy 2025 – Minister of E&MR; Pertamina Analysis
1,138
25%
48%
20%7%
Coal
Oil
2025
36%
24%
2010
- Diesel and gasoline substituted by CNG in transportation sector
- LPG substitution in household and commercials
� As such, Indonesia has set an energy mix target to significantly increase the role of gas and coal – substituting the role of gasoline/diesel
� Government is fully support to accelerate gas infrastructure development
Government Program
� Energy source conversion to gas
� Gas as a main energy source for power plant
� Gas infrastructure development across Indonesia
Energy demand mix evolution is driven by consumer growth and fuel substitution – regulation impacts both dimensions
Consumer Growth
Consumer Growth – Power ExampleIndonesia Power Consumption Forecast, GW � Industrial regulations are key to growth of
consumer segments:
– Facilitation in setting up industry units
– Pricing driving customer acquisition
– Public service obligation etc.
Role of Regulations
0
50
100
2012 2014 2016 2018 2020 2022 2024 2026
+8%
2
Fuel Substitution
Fuel Options for Consumers
Gasoline
Diesel
LPG
Fuel Oil
Jet Fuel
Fertilizer
Refinery
Power
Petrochemical
Steel
Aviation
Industrial
Household
Commercial
Transport
Gas Products End Consumer Oil Products
Natural Gas
CNG
� Fuel pricing regulations impact economic substitution between fuels:
– Price subsidies on gasoline, diesel and natural gas will determine their demand mix
� Mandates may drive substitution of certain fuels:
– Substitution of gasoline and diesel with CNG may be boosted by mandating CNG use in public transport
� Regulatory thrust on alternate energy may drive its adoption over conventional fuels
Source: Pertamina Analysis
However, the lack of infrastructure leads to gas deficits across Indonesia
Indonesia Gas Balance 2010-2025 (in MMscfd)
Aceh
North Sumatera
South Maluku
Central Sulawesi
South Sulawesi
East Kalimantan
Riau Islands
-133
-119
-139
-173
-118
507
-175
-30 -30
-83
600 600
0
-124 -129
2010 2020 2025
3 3
Source: Ministry of E&MR
Central & South Sumatera
West Java Central Java East JavaPapua
Riau Islands-173-226 -226
-580
-668-619
0
-96
-145
-58
-94
-10 -18-635
-1490 -200
9
-166 -159 -195-519
-920 -1064
Existing gas infrastructure is still significantly underserving the current and future demand
4 4
• Transmission pipelines (open access) : 3.795,6 km, Distribution pipelines in Sumatera 707,08 km and in Java: 3.180,17 km• Installed Capacity of LPG : 4,2 MMTPA, LNG : 42,09 MMTPA• Capacity of existing regasification terminal : 1,200 MMSCFD
Source: Ministry of E&MR
The demand growth entails large investments in gas infrastructure
2.500
1.500
2.000
1.000 2.0651.769
Pipeline Cost
Regasification Cost
Estimated Aggregate Investment, $MM
5 5
� Estimated total investment : ~$ 8Bn � Transmission and distribution pipeline cost : $5,9 bn (~70% of total investment)� Regasification cost : $ 2,4 Bn (~30 % of total investment)
391391
243 243 3363333618
680680
233233200 204
500
0
2016 20242014 2025202020152012 20222017 202320182013 2019 2021
69 21 21
1.769
69 120Estimated Aggregate Investment, $MM
Source : Bapennas
International
6.3
0.74.0
1.6
Value distribution of Indonesia gas value chain business
Distribusi value pada mata rantai bisnis gas Internasional1
$/Mmbtu
~16% 11% ~25%
Value distribution of International gas value chain business1
$/Mmbtu• Structure of margin
portion in Indonesia, especially in midstream (transmission) is below compare to international benchmark
• Transmission is the lowest margin contributor for developing end customer price
Margin Portion (%)
End customer price
Distribution/Trading
TransmissionUpstream2
Marginal return causes less attractiveness in midstream sectors investment
~
6
Indonesia
10.0
0.63.4 - 4.4
5.0 – 6.0
1 Business margin in country that had market mechanism such as Europe – UK, Spain, and Germany (2001-03)2 include operation and production cost
Value distribution of Indonesia gas value chain business$/Mmbtu
~16% 5%35-45%
customer price• It can be assumed
that return of transmission is marginal and less attractiveness for investors
Margin Portion (%)
IRR of transmission pipeline is 11-12%, by 90% of utilization
(Regulation by BPH Migas)
End customer price
Distribution/Trading
TransmissionUpstream2
~
Source: Pertamina Analysis
Pertamina as NOC has taken major role by developing gas Infrastructure that covering all regions in Indonesia
Arun
LNG KTI development
Trans Sumatera pipeline
HalmaheraSemberah Bontang
Pipeline, Regasification, and LNG development
Planned pipelineExisting pipeline
Existing FSRU Planned FSRU
LNG KTI development
Gas Upstream development
Gas Field
Offshore
7
source: Pertamina; Litsearch; company reports; company websites
FSRU Cilacap
FSRU Jabar
Trans Java pipeline
Halmahera
Pomalaa
Makassar
Pesanggaran
Batakan
Tanjong Batu
Semberah Bontang
FSRU Jateng
7
• Pertamina has identified a portfolio of pipeline, regasification, LNG and mini-LNG projects across Indonesia
• The most critical projects over the next few years are the Trans-Sumatera and Trans-Jawa pipelines, Arun regas, and LNG KTI
• But all those initiatives from Pertamina was not enough to meet the gas demand across Indonesian regions
Partner(s)
RegasificationStorageSupply
Gas infrastructures can be built and operated through a partnership
Distribution & Marketing
Demand
SOE
Required Capabilities
Partner selection based on capabilities
8
8
Joint Venture (JV) � Investment &
financing
� Technology and
O&M
� Asset
� CommerceMultilateral Agencies/Export Credits Agencies
Commercial Banks
Project Financing
As large investment is the main hurdle to build gas infrastructure, then business model through partnership and project financing is one of the solution.
Source: Pertamina Analysis
Upstream-led model Downstream-led model Standalone model
Typical Business Modelse. g. Regasification Terminal Projects
� LNG regasification is driven by upstream players
� A long term supply agreement and demand certainty along the value chain are required
Definition � LNG regasification is mainly driven by LNG demand on end customers
� Off-take commitment is required
� LNG regasification as standalone chain
� Typically this is applied in: fragmented demand and LNG as important source for the security and diversification of supply
BENCHMARK
Typical business models for gas infrastructure
9
9
Example� South Hook project in UK developed by ExxonMobil and Qatar Petroleum processes LNG supplied by Qatargas.
� Malaysia LNG Variant
� DEPA’s regasification terminal at Revithoussa, the terminals developed by GDF-Suez in France and the investments made by Union Fenosa and Iberdrola in the Segunto and Ferrol regasification terminals in Spain.
and diversification of supply
� Enagas of Spain developed terminals in Barcelona,
� Cartagena and Huelva. Gasuniedeveloped the Gate terminal in Rotterdam
Source: Pertamina Analysis
Key challenges to bring gas to unmet demand centers
Infra-structure
• Construction of new gas pipelines, liquefaction & regasinfrastructure to address geographical dispersion between demand centers (Java and Sumatra) and supply centers (Kalimantan, Papua and Sulawesi)
• More efficient use of existing infrastructure through national gas policy linked to industrial development
• Greater open access to gas markets and pipeline infrastructure
• Address disparity between domestic gas prices and global LNG prices
10
Supply
RegulationPricingIndustrychallenges
Source: Pertamina Analysis
• Favorable government policies and fiscal incentives / contract terms to support development of upstream fields and gas T&Dinfrastructure
• Simplification of land acquisition process for development of gas infrastructure
• Simplify upstream gas supply contract process to improve speed to market
global LNG prices• Addressing fuel
subsidies creating artificial barriers to adoption of gas as fuel
10
Regulatory support is required to effectuate favorable demand mix and infrastructure investments
Key Support required from Regulators
Facilitation of Target Energy Mix
� Regulatory support is required for Indonesia to achieve the target of oil substitution by increase in gas and renewable penetration. Certain steps in this direction could be:
– Facilitating substitution driven by economics through pricing regulations : e.g. Liquid fuel price deregulation and/or subsidies on alternative energy / CNG
– Volume allocation of substitutes to consumers to create certainty of supply : e.g. preferential allocation of gas to city gas distribution, fostering fuel substitution
11
Source: Pertamina analysis
Facilitation of Infrastructure Investments
Facilitation of Supply
Enhancement
– Mandates facilitating substitute adoption : e.g. mandating use of CNG in public transport
� Attracting investment in exploration & production as well as supply infrastructure such as refineries by easing the regulatory regime appropriately
� Attracting global players to provide access to their existing infrastructure or invest in new infrastructure to support Indonesia’s energy demand:
– Facilitating use of assets of global players : e.g. exemption from Cabotage to Oil & Gas shipping activities
– Attracting infrastructure investments : e.g. providing tax breaks to global investors