Thin Profit Margins Threaten Gas Infrastructure Development

Summary

The thin gas profit margin could be a threat to the development of natural gas infrastructure in the future. Energy observer from the Reforminer Institute Komaidi Notonegoro said, with cheap gas prices and market uncertainty, the return on investment rate (RoI) for natural gas infrastructure development projects will take a long time. "This is because of the lower the gas price, the thinner the margin that developers can get. This will make it difficult for business players to build new infrastructure," Komaidi said on Friday (11/27).

Komaidi sees that the government's policy to cut gas prices for certain industries to the level of US$6 per MMBTU is very hasty and seems to be only to comply with long-established regulations. According to him, the policy would backfire if the government did not support incentives for natural gas infrastructure developers. Of course, it is tough to force companies whose margins have been cut by government policies to build natural gas infrastructure unless there are incentives that provide solutions for their businesses to stay healthy when they expand.

With limited margin, Komaidi said, developers would prefer the lowest risk of managing natural gas infrastructure with a clear supply and market. "If investors see that investment in other places, for example, can get an IRR of 12 percent, while in natural gas infrastructure projects the IRR is lower, then there will be no investors willing to invest in developing gas infrastructure," he said.

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