Assessing industrial customer’s willingness to pay to support natural gas pricing policy in Indonesia

By Novi Muharam, Widodo Wahyu Purwanto | Publication, Scientific Paper

The price of natural gas has always been controversial; there are always different points of view between producer and consumer because of its determination. However, in reality, it is not easy to reach prices in equilibrium conditions. On the others side, the Indonesian government has capped gas prices for some industries to increase the competitiveness of the industrial sectors. This study aims to assess the willingness to pay industrial gas users and to compare it with the current gas price policy. Willingness to pay off gas users is determined by netback value from the final product. The study shows that the willingness to pay is 11.41, 10.10, 9.13, and 3.78 $/MMBtu for ceramic, glass, cooking oil, and steel industries, respectively. The willingness to pay for ceramic, glass, and cooking-oil industries are higher than the current gas price (6 $/MMBtu), except the steel industry is lower. The current gas price includes a government subsidy by reducing the share of the government takes of the upstream sector. Therefore, the government needs to sort out which industries deserve the special gas price by considering willingness to pay in the future.