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Indonesia implements new revision to ICP formula from July

Energy Transition

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Indonesia implements new revision to ICP formula from July

Jakarta — Indonesia's Ministry of Energy and Mineral Resources implemented a revision to its Indonesian Crude Price formula from July 1, 2018, in a bid to better reflect the market value of the country's flagship crude oil grades, a senior official said Thursday.

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The formula, which will be implemented retroactively from July for a year, has now been revised to reflect Platts Dated Brent plus/minus an alpha, from Platts Dated Brent plus an alpha previously, the official said.

The previous formula had given the impression that Indonesian crude prices were higher than Brent, when in fact, only Banyu Urip crude is priced higher than Brent, oil and gas director general at the energy and mines ministry Djoko Siswanto said.

"That is why we chose Dated Brent plus/minus alpha. Brent plus is for Banyu Urip and Brent minus is for the remaining crudes," he said.

According to the ministry's regulation on the new ICP formula issued July 30, 2018, Dated Brent is calculated based on the monthly average of the Platts benchmark price.

The alpha is calculated based on the published outright assessments of the Indonesian crude grades' during the current month, or the average of published prices for two months consisting of the previous month and the current month. The alpha will also consider the quality of the crude grades, trends in international crude prices and national energy security, according to the statement.

The government has also included an additional scenario to the existing four scenarios, which have been implemented since July 2016, to determine the alpha, Siswanto said.

The fifth scenario takes into account the gross product worth, or GPW, of the crude grades, or the price of the crude based on its product yields.

"We use 50% GPW and 50% international index to help adjust the alpha spreads to better reflect the market fundamentals. So, currently we have five scenarios to determine alpha," Siswanto said.

Indonesia first changed its ICP formula to be priced off Platts Dated Brent in August 2016. Prior to that, the ICP had been based 50% on Platts and 50% on RIM spot assessments.

Last month, the ministry set the ICP for Minas grade lifted in June at $70.73/b and Banyu Urip crude at $75.78/b. With Platts Dated Brent in June at $74.33/b, the June alpha for Minas was equivalent to minus $3.60/b and Banyu Urip was plus $1.45/b.

July ICPs are expected to be released in the coming days. -- Ada Taib, ada.taib@spglobal.com

-- Gawoon Philip Vahn, philip.vahn@spglobal.com

-- Anita Nugraha, newsdesk@spglobal.com

-- Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com