Why an oil producer turned into an importer
Written by Writer on Wednesday, October 8th, 2008
Why an oil producer turned into an importer
Wahyudi Soeriaatmadja
The Straits Times
Indonesia’s petroleum production has plummeted by almost half in the past decade, and its ageing oil fields are not all that is to blame.
The tangle of red tape faced by oil companies, coupled with rising local demand, have helped turn the country from oil producer to net oil importer.
Indonesia now produces about 850,000 barrels of crude oil daily - far below the 1.5 million barrels it achieved at its peak in the 1990s.
In fact, production is down so much that the Organisation of the Petroleum Exporting Countries (Opec) agreed on Sept 10 to suspend Indonesia’s membership - at Jakarta’s own request.
Indonesia’s historic 46-year-old membership in the group - it is Opec’s only Asian member - will become effective on the first day of next year, hardly something to celebrate on such a holiday.
It has been considering exiting the group for three years as it has routinely failed to meet output targets set by the cartel.
Analysts were not surprised by the development.
“It was long overdue for Indonesia to step out because as a net importer, it didn’t make sense to stay on,’ Mr Anthony Nunan, assistant general manager for risk at Mitsubishi Corp in Tokyo, told The Straits Times.
Indonesia’s new oil law, passed in 2001, discouraged investment and sent oil companies looking to tap sources elsewhere, often in more expensive places like Canada.
Other producing countries such as Mexico and Venezuela have experienced a similar exodus as unfriendly regulations scared investors off.
Delays in negotiating oil concession agreements have also contributed to the decline in Indonesia’s output.
“The new oil and gas law has made the investment process more bureaucratic and time-consuming,” said Kurtubi, director of the Jakarta-based Centre for Petroleum and Energy Economic Studies.
“Investors must pay many different kinds of taxes, even when they are still in the exploration stage, before they start production.”
Bureaucratic reforms - a response to calls for more transparency - required the government to form an independent oil and gas agency to take over the regulatory role from state-owned PT Pertamina. The latter used to have the authority to grant oil concessions to foreign partners and to oversee their operations.
After former president Suharto’s fall in 1998, the government had repeatedly said there would be a new law. But it realised the plan only in late 2001, leaving investors in limbo.
To make things worse, the independent oil and gas regulating body, BPMigas, was not established until a year after the passage of the 2001 oil and gas law.
Analysts said Mother Nature has also compounded the country’s problems: The remaining oil fields are deep and located in remote areas, making for difficult extraction and thus, low supply.
Said Mitsubishi Corp’s Anthony: “If they drill new areas offshore and if Indonesia would let more international companies in and make the fiscal terms for the international companies better, then they can increase production.
“But it’s not going be a huge increase: It’s going be a marginal increase.”
