Analysis of Policy and Regulation of Indonesia’s Natural Gas Market

Abstract

Natural gas has re-emerged as a strategic transition fuel, yet comparative evidence remains limited on how resource-rich developing economies use domestic gas resources to strengthen energy security and market efficiency while advancing climate goals. Indonesia presents a paradox: despite substantial reserves and a long export history, it has faced recurring domestic supply tightness driven more by regulatory and structural constraints than by resource depletion. This study examines how institutional arrangements and market design shape the efficiency of Indonesia’s natural gas market. Using qualitative thematic analysis of policy and regulatory documents, stakeholder interviews, and mass-media narratives, it analyzes the interaction between regulatory governance, market structure, and stakeholder perceptions. The findings reveal a rigid market architecture characterized by vertically integrated state-owned enterprise dominance, overlapping mandates, fragmented midstream coordination, and weak third-party access implementation. Affordability-oriented pricing policies, introduced without systematic evaluation, distort price signals and investment incentives across the value chain. Limited transparency in infrastructure capacity and allocation further increases contractual risk and reliance on discretionary intervention. The study concludes that improving market performance requires governance modernization rather than rapid liberalization, especially through clearer mandates, routine policy evaluation, non-discriminatory access, targeted affordability instruments, and greater market transparency.