Oil News: Indonesia Rejoins OPEC in December after Seven Year Hiatus

The OPEC was created at the Baghdad Conference in 1960 with the aim to “co-ordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”

Resource-rich Indonesia joined the OPEC in 1962. During the authoritarian Suharto regime Indonesia reached its peak oil production figure (approximately 1.6 million barrels per day/bpd) in the mid-1990s. However, since the start of the Reformation period Indonesia’s oil output has been in a state of decline due to weak government management, bureaucracy, an unclear regulatory framework, corruption and legal uncertainty. Combined, these factors led to declining investment and exploration in the country’s oil industry, hence mostly relying on maturing oil fields for oil production.

In recent years Indonesia’s oil output continued to decline steadily. Oil lifting targets set in the state budget are rarely met. In 2014 Indonesia produced an average of 794,000 bpd, well below the government’s oil lifting target of 818,000 bpd set in the 2014 State Budget.

Indonesia’s Crude Oil Production (in thousand bpd):

Indonesian Oil Production and Income:

	Production	State Income
2015¹	825,000 bpd
2014	794,000 bpd
2013	826,000 bpd	USD $31.3 billion
2012	860,000 bpd	USD $33.5 billion
2011	900,000 bpd	USD $35.9 billion
2010	945,000 bpd	USD $26.5 billion
2009	949,000 bpd	USD $20.0 billion

^{¹ government target
Source: Investor Daily}

Meanwhile, oil and fuel consumption has risen sharply in Indonesia due to robust economic growth since the mid-2000s. In fact, increasing fuel demand was fuelled by government policy as it provided generous fuel subsidies (until gasoline subsidies were finally scrapped in January 2015). Although the government aimed to support the poorer segments of Indonesia’s population through its fuel subsidy policy, it was actually the country’s rapidly expanding middle class that benefited most. However, fuel demand remains high in Southeast Asia’s largest economy. Currently, Indonesia imports about 350,000 bpd and 500,000 barrels of fuel per day from several countries in order to meet domestic demand.

Declining oil production and increasing fuel consumption turned Indonesia into a net oil importer in the mid-2000s and therefore it officially left the OPEC on 1 January 2009.

However, Indonesia’s oil production is expected to rebound in 2015 as the Bukit Tua oil field (part of the Ketapang block in East Java, operated by Petronas Carigali) has come online in March 2015, while output at the Cepu Block (also located in East Java) is expected to reach its peak production rate (perhaps as high as 165,000 bpd) by September or October 2015. These developments are probably reason why Indonesia’s government officials gained enough confidence to submit a request to the OPEC to reactivate its full membership in 2015.

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