Optimization of Pipeline Natural Gas Selling Price in the Oil and Gas Downstream Business Activities in the Industrial Sector in East Java Region

Abstract

Indonesia regulates the pipeline gas selling price in oil and gas downstream business
activities by issuing the Minister of Energy and Mineral Resources Regulation Number 58
of 2017. It has formulated the gas price by calculating the trading companies’ internal
rate of return and margin but has not yet considered the purchasing power of their
consumers and the gas price zone determination for when the gas price will be
implemented. The study aims to optimize the gas price for industrial sector in the existing
sales areas in 10 cities in East Java. The optimization is conducted by considering the
pricing zones, producer net backs, and consumer social welfare on the gas price
calculation. The optimal gas price is calculated using multi-objective optimization method
to obtain the optimum point between the net back and social welfare functions. The study
found that the gas pool is an optimal pricing zone due to have minimum effect for
consumers and easy implementation for trading gas companies and government. The gas
pool price can cover several cities that have different levels of market maturity. The
optimal gas price in East Java gas pool is around 10.36 to 13.08 USD/MMBTU that the
formulation of gas prices regulation is on this range