1. Gas Development Master Plan
Scenarios for the GDMP
Capacity Building Workshop
Bali, 1-2 July 2013

2. 2
Contents
1. Why scenario analysis?
2. Setting up scenarios
3. What are Government policies?
4. The proposed policy scenarios
5. Comparing scenarios

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1. WHY SCENARIO ANALYSIS?

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Why scenario analysis?
We are using DASS-TIM to
• identify the optimal gas transportation infrastructure
investment plan
• assess the impacts of alternative policies on gas market
growth, government revenues and economic benefits
to Indonesia
To do so, we need to be able to
• test the robustness of the infrastructure investment plan
to changes in demand-supply conditions
• test how different policies impact on the gas market
Scenario analysis is the tool we use for this purpose

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Selecting scenarios
There are potentially thousands of different scenarios that
we could analyse
This would clearly be excessive
Instead, we want to identify 4-6 plausible policy scenarios
that we can investigate using DASS-TIM
This session looks at possible scenarios, as a basis for
discussion

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2. SETTING UP SCENARIOS

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Major input variables
SUPPLY DEMAND
Production Power sector demand
All years 2013-20 2021+
• Base / Low /
High case
• Average PSC
take
-- • Income
elasticity
Exports Other demand
All years 2013-25 2026+
• Existing
commitments
• New
commitments
• World market
gas prices
• DMO (export
or domestic
priority)
• Base / Low /
High case
• Income
elasticity
• Price elasticity
• Domestic gas
price growth

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How demand is projected
Demand growth
= income elasticity x GDP growth
+ price elasticity x domestic price gowth
For example, assume
• income elasticity = 1.2
• price elasticity = -0.4
• GDP growth = 6%
• domestic price growth = 10%
Demand growth = 1.2 x 6% - 0.4 * 10% = 3.2%

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Historic elasticities in Indonesia
• But, these are not necessarily a good guide to the future!
• Historically, supply constraints mean demand cannot be met
• We are modelling unconstrained demand

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Setting up policy scenarios
Demand
• Select base / low / high cases for non-power demand to
2025
• Input income elasticity by sector
• Input domestic price growth
Supply
• Select whether priority to exports or domestic demand
• Input any new export commitments
• Input export prices and DMO price
• Input government PSC take

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Modelling example government policies
Increasing the use of gas in transport
• select high demand case (to 2025)
• input a higher income elasticity (after 2025)
Applying the Domestic Market Obligation
• select priority to meeting domestic demand
• reduce future export commitments
• input DMO price and any resulting changes to domestic
price growth
Encouraging development of marginal fields
• select high production case
• reduce government PSC take to represent incentives

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3. WHAT ARE GOVERNMENT POLICIES?

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Government targets for gas in the energy mix
Gas to be 19.7% of the energy mix by 2025 (draft National
Energy Policy)
• down from 20.1% in 2011
• previous target was 30% (Government Regulation
05/2006)
• the reduction reflects the switch from gas to coal for
future planned generation capacity on the Java-Bali grid
Implies increase in gas market from 3,120 mmscfd to 7,620
mmscfd (6.6% annually)

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Role of natural gas in the energy mix
Substitute natural gas for diesel and fuel oil in power
generation
• reduce electricity subsidies
• conversion of existing dual-fuel plants
• natural gas (LNG and CNG) seen as particularly suitable
for smaller-scale generation in Eastern Indonesia
Substitute natural gas for petroleum products in
transportation and residential use
• reduce fuel subsidies
• CNG and mini-LNG for transport, piped gas for residential

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Gas demand based on energy mix targets?
By 2025
• transport demand represents one-third of all gas demand
• gas is 26% of total transport energy demand (~560,000
vehicles)
• Industrial gas demand
grows at 2000-11 average
• Power sector gas demand
from PLN RUPTL (2021)
• Total transport energy
demand grows at 2000-11
average

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National gas utilisation policy (MEMR Decree
03/2010)
I. Prioritise gas for domestic needs
II. Prioritise new discoveries to meet local needs
III. Prioritise utilitisation of domestic gas
1. Supporting increased oil and gas production
2. Meet the needs of fertiiser plants
3. Meet the needs of power generation
4. Meet other industry needs
Increasing allocation to transport over period to 2025

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Gas pricing policy
Gas prices being increased towards parity with LNG
imports (power, fertiliser) and alternative fuels (industry)
• makes supplying the domestic market more attractive for
producers
• reduces the potential price shock if large-scale LNG
imports start

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Questions to consider
Are incentives for producers consistent with growing the
domestic market?
• increasing domestic prices makes the market attractive
but what are the implications for the market’s size?
Is natural gas competitive with petroleum products?
• if not, then growing the transport and residential markets
requires lower prices or new subsidies

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Competitiveness of gas in transport

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And, of course…….
Export or import?
• Is it better to maximise export revenues and use these to
promote domestic economic and social development?
• Or to use gas domestically and use this to promote the
development of value-added industries?

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4. THE PROPOSED POLICY SCENARIOS

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Proposed policy scenarios
1. Business-As-Usual (BAU)
2. Accelerated Current Policies
3. Green Growth
4. Domestic Market Growth
5. Export Market Growth

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Business-As-Usual
Key features
• Existing policies continue unchanged
• Push to increase gas use in transportation
• Gas in power sector largely used to supply smaller grids
in East Indonesia (little growth in demand post-2021)
• Gas prices continue to increase over time
Model inputs
• Priority to domestic market supply
• High growth in transportation market (high income elasticity)
• Other non-power income elasticity based on historic values
• Low income elasticity in power sector demand post-2021
• Gas prices increase to LNG import parity by 2023 (10 years)

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Accelerated Current Policies
Key features
• Speed-up of current policies
• Major push to increase gas use in transportation and
residential uses
• Rapid increase in gas prices to import parity levels
Model inputs
• Priority to domestic market supply
• Very high growth in transportation market (very high
income elasticity)
• Gas prices increase to LNG import parity by 2018 (5
years)

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Green Growth
Key features
• Emphasis on the use of gas to reduce emissions
• Major push to increase gas use in transportation and
residential uses
• Gas becomes favoured technology for new power
generation post-2021
Model inputs
• Priority to domestic market supply
• Very high growth in transportation and residential
markets (very high income elasticity)
• High income elasticity for power sector demand
• Gas prices increase to LNG import parity by 2023

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Domestic Market Growth
Key features
• Emphasis on increasing the domestic market for gas
• Primary focus is industrial demand
• Construction of distribution infrastructure and slower
price increases
Model inputs
• Priority to domestic market supply
• Very high growth in transportation and residential
markets (very high income elasticity)
• High income elasticity for power sector demand
• Gas prices rise to LNG import parity by 2033 (20 years)

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Export Market Growth
Key features
• Emphasis on maximising exports
• Reduced emphasis on domestic market growth
• Incentives to gas producers to increase supply
Model inputs
• Priority to export market supply
• High production case and lower fiscal take
• BAU elasticities for domestic market
• Gas prices rise to LNG import parity by 2018

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5. COMPARING SCENARIOS

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Comparing scenarios – DASS-TIM outputs
• Gas infrastructure investment costs (processing and
transportation)
• Government revenues from PSCs
• Economic benefits of gas displacing other fuels
(difference between fuel cost and gas cost)
• Carbon emissions

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Comparing scenarios - other considerations
In comparing scenarios, the following will also need to be
considered
Changes in subsidies
• reductions in subsidies for petroleum products
• may be offset by need for subsidies for use of gas in
transportation and fertiliser
Costs of developing gas distribution infrastructure (DASS-
TIM only looks at transmission between regions)
• required for promotion of industrial, residential and
transportation demand

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What we can’t compare - employment
Unfortunately, we can’t model employment generation in
the wider economy. Doing so requires a full Input – Output
model of Indonesia
But we shouldn’t automatically assume that developing
the domestic market will increase net employment
• raising gas prices to make the domestic market attractive
also raises domestic industry costs, reducing demand for
their products
• government spending from increased export revenues
will generate employment through higher incomes and
demand for goods and services