Indonesia considers leaving Opec

Tuesday 08 February 2005, 14:18 Makka Time, 11:18 GMT

Crude oil exports have declined by 70% in the past two years

Indonesia, the only Asian member in Opec, is reviewing its status in the oil cartel as dwindling production is pushing it closer to becoming a net importer, the energy minister has said.

Purnomo Yusgiantoro was quoted in the Jakarta Post newspaper as saying that a consideration to withdraw from the Organisation of Petroleum Exporting Countries (Opec) would be carefully weighed.

Analysts warned that such a move could backfire and cause foreign investment in the beleaguered sector to decrease further as the country is looking to boost interest.

Sensitive diplomacy

Any move to end Indonesia’s 43-year membership would have to be carefully weighed as it “involves our diplomatic ties with other Opec members, especially the Gulf countries,” he said, adding that a panel is looking into the issue.

Indonesia joined the 11-nation Opec, which supplies nearly a third of global crude oil, in 1962, but the country’s oil output has fallen 5% annually over the past decade to less than a million barrels per day (bpd).

Its crude oil exports dropped sharply to 30,000 bpd in 2004 from 100,000 bpd in 2003, forcing the country to become a net oil importer for four months of last year, said the ministry’s oil and gas director general Iin Arifin Takhyan.

High stakes

Analysts say the stakes are high for Indonesia if it exits Opec.

Minister Yusgiantoro says leaving
Opec would be carefully weighed

Kurtubi, an oil and gas analyst from the Centre for Petroleum and Energy Economic Studies, said Indonesia risked losing valuable foreign investment in the sector as it would no longer be viewed as having oil potential.

“If Indonesia leaves OPEC, it will affect the flow of oil and gas investment into the country,” he warned.

Indonesia would also lose access to an organisation whose decisions influence oil supply and prices, he said.

Kurtubi said Indonesia should focus instead on ways to boost output to meet domestic demand growing at up to 7% a year.

Aging oilfields

“The decline is due mainly to the natural decline in production of aging oil fields, a lack of new investment in deep-sea exploration and regulatory problems that need to be quickly addressed,” he said.

He added there was too much red tape in oil and gas laws, making investors reluctant to commit large amounts of capital for the long term.

Other analysts said Indonesia’s withdrawal was unlikely to shake Opec as its six Middle Eastern members, including Saudi Arabia, control 63% of the world’s oil reserves.

Opec’s members are Saudi Arabia, Iran, Venezuela, Iraq, United Arab Emirates, Kuwait, Nigeria, Libya, Indonesia, Algeria and Qatar.