Abstract

The national energy policy favors energy export as a source of foreign exchange earnings and government revenues. To sustain energy exports, the government plans to utilize energy sources which can not be exported to meet the increasing demand for domestic use.

The economics of natural gas development depend on the total production, the selling price, the production costs and the tax taken by the government. The price of natural gas must be competitive with other energy prices, especially oil, to enter the energy market. The production costs depend on geographical and geological conditions.

Any company investing in a natural gas project needs to receive profits that at least meet its minimum attractive rate of return. Otherwise the company will invest in another project.

Not all natural gas produced can be exported due to its reserves size. This study conducted to measure the effect of price, costs and tax on the rate of return of funds invested by companies operating gas projects in Indonesia especially for those which are intended to be used for domestic demand. Opportunities and problems in natural gas development in Indonesia will also be discussed.