Indonesia's makes 'sovereign' decision to withdraw from OPEC

OPEC Pres. Chakib Khelil, while acknowledging that Indonesia has played an important role since joining the organization in 1962, said its plan to withdraw from the group is a "sovereign" decision.

Jul 29th, 2008

Eric Watkins
Senior Correspondent

LOS ANGELES, July 29 -- Chakib Khelil, president of the Organization of Petroleum Exporting Countries, while acknowledging that Indonesia has played an important role since joining the organization in 1962, said its plan to withdraw from the group is a "sovereign" decision.

Khelil also indicated that several options were available, saying that Indonesia could either suspend its membership or remain in the organization as an observer once its membership expires at yearend.

"All the options are open, but it is up to Indonesia to the make the decision," Khelil said.

Indonesia's Energy and Mineral Resources Minister Purnomo Yusgiantoro repeated his country's aim of leaving the group when its membership expires at the end of the year, saying that, "We have become a net oil importer."

Indonesia's future
Indonesia turned a net oil importer in 2003 on declining production of oil together with increasing domestic consumption. However, government officials have said Indonesia could rejoin OPEC in the future if its oil production and exports pick up again.

The discussion over Indonesia's future in OPEC coincided with reports that—due to continued low domestic production and spiraling consumption—the country's oil and fuels trade balance has been in deficit for the first half of this year and is likely remain in deficit for the remainder of 2008.

Economist Faisal Basri of the University of Indonesia (UI) said the deficit stood at $5.5 billion as of the end of May, with oil and fuel imports reaching $13 billion while exports earned just $7.56 billion.

"We are heading toward a very critical situation if we don't formulate a proper energy policy. The deficit is predicted to be $15 billion at the end of this year," said Faisal at a discussion on the energy crisis held by UI.

The big gap between the fuels import and export shows the country has poor production but massive consumption, said Faisal, who added that inefficiencies at state-owned Pertamina have contributed significantly to the wide gap between imports and exports.

Faisal offered a comparison to illustrate his point, saying, "Pertamina's cost recovery in 2007 was $36.10/bbl, while Chevron's [Corp.] was only $6.80/bbl."

Investors needed
Meanwhile, Indonesia's recent efforts to attract new investment into the oil and gas sector have not been as successful as government officials had hoped.

According to Evita H. Legowo, the newly appointed director general of oil and gas in the ministry of energy and mineral resources, half of the 21 oil and gas blocks offered by the government last year failed to attract investors.

"We don't know exactly why some blocks didn't attract any investors. It could have been that investors had doubts about the data or maybe they needed more advanced technology to operate the blocks on offer," said Evita.

In a renewed effort to attract investment, the government plans to open a new auction for oil and gas blocks in October or November, and may include those blocks leftover from the last round.

"We are still formulating which blocks we will offer. We are also still deciding whether the unsold blocks would be offered again or not," said Evita, who did not disclose which blocks remained unsold.

In May 2007, the government put up 21 oil and gas blocks for auction: North X Ray Block in West Java; N. E Lombok I and N.E Lombok II blocks in Nusa Tenggara; Semai I, Semai II, Semai III, Semai IV and Semai V blocks in West Papua; South East Tual block in Arafura; Cakalang block in Natuna; Kerapu, Baronang, Cucut, and Dolphin blocks in Nautana; Bawean II, East Bawean I, Gunting and Situbondo blocks in East Java; Buton II block in Buton; Rangkas block in Banten; and West Timor block in Timor.

Contact Eric Watkins at hippalus@yahoo.com.

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