Indonesia to withdraw from Opec

Indonesia to withdraw from Opec
Petrol station in Indonesia

Indonesia has said it will quit the oil producers' body Opec as it is no longer a net exporter of the commodity.

Energy minister Purnomo Yusgiantoro confirmed the move, which had been anticipated for some time.

Opec's sole member in South East Asia, Indonesia became a net importer of oil in recent times after production fell and it struggled to find new reserves.

Soaring oil prices have pushed up inflation in Indonesia and a recent cut to fuel subsidies prompted protests.

Production stagnates

Indonesia will leave the 13-member organisation when its membership expires later this year.

The BBC's Lucy Williamson in Jakarta says the decision is not unexpected, since Indonesia's production - largely concentrated in northern Sumatra - has stagnated and it has precious few sources of proven new reserves.

But she adds that ministers are leaving the door open for it to return, should any future discoveries of oil transform the state of its industry.

Analysts say foreign oil firms have historically been deterred from investing in Indonesia, because of concerns about corruption and weak legal controls.

OPEC MEMBERS

* Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, UAE, Algeria, Nigeria, Ecuador, Angola, Indonesia

Opec office

In recent times, the government has increased the financial incentives on offer to foreign firms to invest in exploration and extraction.

Indonesia is currently producing about 860,000 barrels of oil a day but growth in demand is expected to continue to outstrip output, increasing the need for imports over time.

The bulk of its imports come from Iran, Saudi Arabia and Kuwait.

Indonesia's exit will not affect the amount of oil it produces or imports, but the country's growing dependence on imports is proving increasingly expensive as global prices soar.

The Indonesian government reduced direct fuel subsidies over the weekend, immediately sending prices up 30%.

Indonesia joined Opec in 1962, two years after the organisation was founded.

Gabon was the last country to pull out of Opec in 1995. Ecuador left the organisation in 1992 but returned to the fold last year.

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Indonesia to pull out of Opec

By John Aglionby in Jakarta

Published: May 28 2008 08:50 | Last updated: May 28 2008 11:21

Indonesia on Wednesday said it would withdraw from Opec at the end of this year because, as a net oil importer, its interests were no longer served by being a member of the oil producers’ cartel.

Purnomo Yusgiantoro, energy and mineral resources minister, said Indonesia – the cartel’s only Asian member – would like world oil prices to fall while Opec’s 12 other members would like prices to remain high.

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Analysts said the decision would have little effect on either Indonesia or Opec since Indonesia’s production, of about 1m barrels a day, was only 3.1 per cent of the group’s 31.9m b/d April output.

Mr Purnomo said Indonesia would like to quit now but since it cannot recoup its 2008 membership fees, it would remain active until its dues expire. However, he said Indonesia might follow the example of Ecuador, which left Opec in 1992 and rejoined last November.

Indonesia’s oil production peaked in 1976 and, after fluctuating for two decades, started to decline in 1995 due to aging fields and a lack of investment. It became a net oil importer in 2005. The energy ministry said production would average about 1m barrels a day while usage would be at least 20 per cent higher than this. Current reserves are 8.4bn barrels.

The country remains a net energy exporter due to its massive gas and coal reserves. It is the world’s second largest liquefied natural gas exporter and second largest exporter of thermal coal, which is used mostly for power generation.

Mr Purnomo said Indonesia’s gas and 2008 coal production was expected to be equivalent to 1.5m and 2m barrels of oil a day, respectively.

Kurtubi, the director of the Centre for Petroleum and Energy Economic Studies in Jakarta, said Indonesia’s decision was appropriate in light of its net importer status but that it would have little impact on either the country or Opec.

“It’s the right decision because Indonesia wants oil prices to fall to stop its state budget bleeding as much as it has been recently,” he said. “It will also act as a warning to the industry and society that the country must do something to increase production.”

Indonesia raised prices of subsidised fuels, which account for 95 per cent of consumer use, by an average of 28.7 per cent last Saturday. This cut its fuel subsidy bill by Rp35,000bn ($3.76bn), or about 20 per cent.

Mr Kurtubi said it would be at least 10 years before Indonesia recovered its net oil exporter status because the 2004 oil and gas law was less investor friendly than previous legislation. Oil companies are now taxed during the exploration phase in addition to the production period.