Indonesia considers quitting Opec

QUITTING OPEC: Indonesia is considering leaving the oil cartel due to record oil prices. (Getty Images)

Indonesia said on Tuesday it may quit Opec, citing a decline in crude oil output that has reduced its influence in the cartel.

Indonesia is Asia-Pacific's only member of Opec, but its crude oil output has fallen in recent years due to ageing wells, a lack of investment, and the absence of any major oil finds.

Its status as a net importer means it would benefit from lower oil prices, putting it at odds with other Opec members, who favour higher prices.

"We are studying whether we have to stay in Opec or leave. We are now a crude oil importer and our production has declined to below one million barrels," Indonesia's President Susilo Bambang Yudhoyono said, referring to the country's daily output.

Indonesia produced 977,000 barrels per day (bpd) of oil and condensate in April, an official at the country's energy watchdog said last week. Of this, 859,000 bpd were crude and 118,000 bpd were condensate.

An Opec spokeswoman declined to comment on the issue.

Indonesia's status as a net oil importer has prompted many analysts to question its continued membership of Opec, especially at a time when the cartel has been expanding.

Angola, Africa's second largest producer, joined more than a year ago and will add up to 2 million bpd to the cartel by 2009, while Ecuador added some 510,000 bpd when it rejoined Opec last November as the cartel's smallest producer.

Indonesia has aired the possibility of leaving Opec before. In 2005 a group of advisers to the government had recommended the country leave the group partly because of the financial costs of membership.

Kurtubi, an energy analyst at the Centre for Petroleum and Energy Econonics Studies in Jakarta, said Indonesia should already have left the group because of its status as a net oil importer, which is different from Opec's interests.

"Our interests now are different. As an importer, we want oil prices to come down as high oil prices put pressure on our budget. But exporters want a reasonable or even high price since it is their main source of revenue," Kurtubi said.

Indonesia is likely to remain a net importer of oil, and the decline in production has forced it to turn to other energy sources. It has huge natural gas and coal reserves, but has been unable to fully exploit those due to a lack of investment and poor infrastructure.

Ageing oil wells and lack of investment in the oil and gas sector have led to a dwindling in oil production. The government predicted Indonesia's average daily oil lifting at 927,000 barrels this year, down from 950,000 bpd in 2007.

Indonesia's old quota for Opec was 1.399 million bpd but Opec members targets were changed in September to reflect actual production and Indonesia's target stands at 865,000 bpd.

Despite its vast natural resources, the government is facing tough decisions over its energy and economic policies due to the surge in the global price of oil.

Fuel is heavily subsidised in a country where millions of people live on less than $2 a day. But with oil trading around a record $120 per barrel, fuel and energy subsidies were forecast to cost the state as much as $20 billion this year, pushing up the budget deficit.

On Monday, the government said it plans to raise fuel prices in order to reduce spending on subsidies - a politically sensitive move given that Indonesia is due to hold elections next year.

President Yudhoyono said on Monday that the government is considering a fuel price increase of between 20-30% to safeguard the budget from rising oil prices.

Indonesia joined Opec in 1962, just two years after the group was founded in Baghdad. (Reuters)

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