2.2.1. Political Change and Price Demands in 2004–2005

In 2004, due to declining gas extraction and growing domestic demand, the new Indonesian government requested to divert some of the LNG-destined gas to local customers. This can be viewed as a hold-up of the firms producing gas in Indonesia, as the regulated domestic price was below the export price. The diversion resulted in LNG supply shortages, uncertainty about contract renewals, and possibly reduced upstream investments.

Due to the diversion, in 2005, Pertamina decreased LNG supplies to Japan, Korea and Taiwan by 51 cargoes, a significant reduction compared to the contracted volumes for that year [31]. Indonesia also increased its exported LNG price from \$2.40/MBtu to \$3.35/MBtu to Chinese, South Korean, Mexican and Japanese buyers [27]. This price increase was partly due to the diversions, and partly due to higher crude oil prices.
