Without Reform, Indonesia's Oil Imports Reach 1.6 Million Bpd by 2020
Imports of oil will accelerate to 1.6 million barrels per day (bpd) by 2020 if fuels continue to be subsidized by the Indonesian government. This development will seriously burden Indonesia's trade balance (and current account). In 2013, Indonesia posted a trade deficit of USD $12.6 billion in the oil & gas sector. Due to improved performance in the non-oil & gas sector, the overall trade deficit was kept at USD $4.06 billion. Besides placing downward pressure on the rupiah exchange rate, expensive subsidies also burden the state budget.
In the 2014 State Budget (APBN 2014), Indonesia allocated IDR 210 trillion (USD $18.6 billion) to subsidies of fuels. Although these subsidies are aimed at supporting the poorer segments of society, the policy actually backfires as cheap fuel is mostly enjoyed by the country's middle class and it creates a more-or-less artificial economy. Moreover, funds spent on fuel subsidies could be spent on much more productive areas, such as infrastructure, education and healthcare, which all contribute to further economic growth and are enjoyed by the poorer segments of Indonesia's society as well.
Another factor that has caused increasing numbers of oil imports is the decline of Indonesia's domestic oil production. Due to a lack of investments in oil exploration, oil production targets (set by the government) have not been met for a number of years in a row because most oil production stems from mature oil fields. Today, Indonesia's total of oil refineries have roughly the same combined capacity as a decade ago, indicating that there has been limited progress in oil production, resulting in the current need to import oil to meet domestic demand. As a result, Indonesia became a net oil importer from 2004, implying that it had to terminate its long-term membership (1962-2008) in the Organization of Petroleum Exporting Countries (OPEC). The lack of exploration and other investments in Indonesia's oil & gas sector are due to weak government management, bureaucracy, an unclear regulatory framework and legal uncertainty regarding contracts.
In 2014, Indonesia's crude oil production is expected to reach 812,000 bpd, lower than last year's result of 825,000 bpd (650,000 of which were refined domestically). Meanwhile, imports of oil stand at 690,000 bpd currently. With the need for energy growing by 6.6 percent per year and an annual population growth rate of about 1.2 percent, it can lead to the need for 1.6 million bpd imports by 2020.
