Government Maintains Energy Prices for Q1 2018

The Energy and Mineral Resources Ministry has announced that it will maintain the prices of electricity and certain fuel types in the first quarter of 2018, forcing state energy giants Pertamina and PLN to bear the burden of increasing oil and coal prices.

“The decision has been made to preserve people’s purchasing power,” Energy and Mineral Resources Minister Ignasius Jonan said during a media conference on Wednesday.

Subsequently, the prices of Premium gasoline, which has a research octane number (RON) of 88, and subsidized diesel fuel will be maintained at Rp 6,450 (49 US cents) and Rp 5,150 per liter, respectively. These rates have been in place since April 2016, even though the prices of global crude have been in an upward trend lately.

The price of global benchmark Brent crude reached $66.78 per barrel on Tuesday after falling to as low as $44.82 per barrel on June 21.

Meanwhile, the price of electricity for low capacity non-subsidized customers will remain unchanged at Rp 1,467.28 per kilowatt hour (kWh). Prices for mid-capacity and high-capacity will hover at Rp 1,114.7 and Rp 996.74 per kWh, respectively.

This is despite the 15.4 percent increase in the price of Asian benchmark Newcastle coal to $96.63 per ton between January and November.

Pertamina and PLN has pledged to undertake various efficiency measures to cope with the government’s decision to maintain current fuel and electricity prices.

Asian Coal Prices Hit Late 2016 High Amid Huge Shipping Congestion

Spot cargo prices for Australian Newcastle coal have risen nearly 15 percent from lows in late November after China loosened import restrictions to help meet a winter fuel shortage.

SINGAPORE: Asian benchmark thermal coalprices have pushed to their highest levels since 2016, fuelled by demand in China and loading delays in Indonesia that have ramped up shipping congestion outside major coal ports.

Spot cargo prices for Australian Newcastle coal have risen nearly 15 percent from lows in late November after China loosened import restrictions to help meet a winter fuel shortage.

“The reason behind relaxing the restrictions was to ensure coal supplies at utilities, as some coal-fired power plants in eastern regions have been operating with minimum coal inventories,” said Zhang Xiaojin, coal analyst at Everbright Futures.

The move by the National Energy Administration also followed an ambitious gasification programme that moved too many households and factories from coal to gas for its utilities to keep up. Traders said strong orders from India have also supported prices, which hit $105.65 per tonne on Wednesday, the highest since November 2016.

“India is buying throughout Q1, which means the shortage is not expected to end any time soon,” said a coal trader with a major trading house, who declined to be named.

HUGE CONGESTION

Bottlenecks at import terminals across China and delays at loading ports in Indonesia’s Kalimantan island, one of the world’s bigggest thermal coal mining regions have added to the tighter market.

“The trouble to load in Kalimantan is a result of huge rainfalls. This has triggered replacement orders for supplies from Newcastle (Australia), pushing up prices there,” said a second coal trader, speaking on condition of anonimity as he was not allowed to comment on trading activity.

The congestion started in late 2017, and is getting worse.

Shipping data in Thomson Reuters Eikon shows around 100 large dry-bulk ships waiting to load coal off the coast of Kalimantan, Indonesia, most of them at Samarinda and Taboneo.

Some ships have been waiting since late October, the data shows.

Even more ships are waiting to unload coal in China, where between 400 and 500 large dry-bulk carriers are waiting outside Shanghai/Ningbo and in the Gulf of Zhili, serving the ports of Tianjin, Coafeidian, Qinhuangdao and Bayuquan.

That’s up from around 300 ships waiting outside both Chinese and Australian ports to load or deliver in late 2017.

Analysts expect tight market conditions to last until the Chinese New Year, which starts in February.

“Congestion and supply-side delays have sent prices higher. We see seaborne coal price support for the winter through to the Chinese New Year, especially from China and India,” said Shirley Zhang, principal analyst for Asian coal markets at energy consultancy Wood Mackenzie.

However, in the longer term, prices should ease as China’s import curbs are potentially restored, heading to $69 a tonne by 2021 for Newcastle, Zhang said.

“In general, the Asian demand growth driver is shifting away from China towards India and Southeast Asia, including Vietnam,” she said, where strong demand growth would require investment into coal.