May 28 (Bloomberg) — Indonesia, the only OPEC member in Southeast Asia, will pull out of the group after aging fields and declining production force the region’s biggest economy to boost imports as crude oil prices reached records.
Energy Minister Purnomo Yusgiantoro will sign a decree today to exit the Organization of Petroleum Exporting Countries, he told reporters in Jakarta. The nation, a member since 1962, has been considering leaving the body in the past three years.
Indonesia imports about a third of its oil because of inadequate refining capacity and faces falling output as disputes with Exxon Mobil Corp. delayed field developments and deterred investments. The country’s oil output has slumped 49 percent from a peak in 1977 while subsidies to cap domestic diesel and gasoline prices may exceed $13 billion this year.
“There is an opportunity lost,” said Fauzi Ichsan, chief economist at Standard Chartered Plc in Jakarta. “Still, Indonesia is now a gas country” and the government needs to encourage more investment in the gas, coal and mining industries.
The withdrawal from OPEC will help the nation save 2 million euros ($3.1 million) on membership fees a year, according to Purnomo.
OPEC members account for more than 40 percent of the world’s oil supply, with output for the 12 members with quota falling 1 percent to 29.74 million barrels a day in April from a month earlier, according to Bloomberg estimates.
Indonesia’s exit follows the addition of two members. Angola became an OPEC member in January 2007 and Ecuador rejoined the organization in December after a 15-year absence, swelling OPEC’s ranks to 13.
Production Peak
Crude oil has doubled in the past year to reach a record $135.09 a barrel in New York on May 22 as demand growth outstrips supplies and the dollar weakens, prompting investors to buy commodities as an inflation hedge. Oil was at $126.80 a barrel on the New York Mercantile Exchange at 5:22 p.m. Singapore time.
OPEC Secretary General Abdalla el-Badri had no immediate comment.
Indonesia’s daily crude output has fallen below 1 million barrels since February 2004, according to Bloomberg estimates. Production probably fell 0.9 percent to 859,853 barrels a day in April from March, oil and gas regulator BPMigas said April 29.
“If production comes back to give us the status of net oil exporter then we can go back to OPEC,” Purnomo said at the Jakarta Foreign Correspondents Club today.
- This means with immediate effect after today, Indonesia is no longer in the Organization of the Petroleum Exporting Countries (OPEC) and unless they can find another major oil fields in their territory, Indonesia will not be able to rejoin the group.
Indonesia’s oil production had peaked in 1977 and had been a net oil importer since 2004 because of declining supply of matured oil fields and surging local domestic demand however Indonesia are able to continue to export natural gas to other countries in LNG (Liquefied Natural Gas) form.
What will be the implication for this sudden pull out from OPEC by Indonesia? Absolutely huge! Without being a member of the prestige club of OPEC, Indonesia have every right to reserve what’s remaining fossil fuels for their own domestic use without being penalized contractually if they fail to export uninterrupted supply of oil.
What about natural gas? Since we know about the declining state of natural gas field in South Sumatra thanks to Batam’s news about their power outage, we can rest assured that we can no longer blame Indonesia in any event of sudden disruption of natural gas supply from Indonesia when the world now knows that Indonesia is no longer in OPEC.
Of course we cannot 100% determine how long will the natural gas field will last but in the light of the sudden pull out from OPEC may signal or hint that the natural gas supply in South Sumatra “might” be declining faster then expected.
This is of course not conclusive as only recently Thailand had signed a deal with Indonesia to buy Tangguh LNG diverted from U.S.
This means the existing pipeline from south Sumatra to Singapore via Batam may be connected to a declining natural gas field however Indonesia still have other strong producing natural gas field that can export in Liquefied (LNG) in ships to other countries.
However, Batam & Singapore does not have a working LNG terminal yet…to receive LNG instead of piped. This definitely posed a serious problems for Batam and Singapore.
With Indonesia no longer in OPEC, KPPU may have bigger case to persuade Indonesia to divert whatever remaining natural gas supply from south Sumatra to service Batam instead of going to Singapore.
Singapore may have to rely on the last 2 pipelines from Malaysia & Indonesia’s West Natuna gas fields and use oil or coal to cover the rest of the demand.
Oil or Coal are consider more dirty to the environment and it’s extremely expensive compared to the piped natural gas. That means the electricity tariff ($/kWh) might just go up faster then you can say “OMG”.
Be prepared to switch off, power down, use less, conserve electricity as much as possible otherwise you shall be facing a scary utilities bill pretty soon.
See also:
- Power crisis starts hitting Batam; fear investors may move offshore
- Asian governments forced to act as oil prices soar
- Batam threatens to block Indonesian natural gas supply to Singapore – Alert
- Japan Faces Indonesian Gas Cuts
- Indonesia to cut LNG supply to 6 million tons after 2010
- Betting billions on liquefied natural gas
- Indonesian firms to build LNG terminal (and why Singapore should go nuclear)
- Indonesia’s LNG supremacy wanes as Chevron’s fields run short
- Energy: Indonesia, Singapore and Malaysia plan power grid
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