The Indonesian Oil

Oil price is still hovering on astronomical numbers these days, as a respond of its high demand which comes incessantly from emerging industrials and manufacturers in the new fast-growing countries like China and India. Many oil exporter countries experience improvement in their economy. Unfortunately, Indonesia is not on that list.

Indonesia is widely known as the only member of OPEC (Organization of Petroleum Exporter Country) from Southeast Asia, which its members export million barrels of oil a year and able to control the market. Indonesia joined OPEC in 1962 and since then consistently exported hundred thousand barrels of oil per year.

With today’s oil price is continuing to hike in the market, oil exporter countries, especially OPEC members, are supposed to gain lots of benefit to its economy. In Venezuela, high price of oil causes an increase in government income and helps to decrease its high inflation rate. In middle-east oil exporter countries, such as United Arab Emirates and Kuwait, economic sectors are booming and views at their metropolis cities are nothing but skyscrapers everywhere.

Regrettably, at the moment Indonesia is struggling because of extraordinary price of oil. Why might that be? The answer of the question is obvious; Indonesia isn’t able to maintain its oil production output. Significant decrease in output induces Indonesia to import the oil to provide the nation’s demand, which continues to rise overtime.

Based on Energy International Agency (EIA), Indonesia’s oil production has started to decline rapidly in recent years. The government targets the level of production of 900,000 barrels per day for 2008, while back in the year of 1991, Indonesia ever recorded a massive number of 1.6 million barrels per day. If truth be told, the country was used to that number of production. During period of 1991-1998, the oil production of Indonesia never stood below level of 1.5 million barrels per day. Then, the situation started to change in the beginning of new millennium. From 2000 until present, Indonesia’s oil production has dropped by 35 percent; from the average total production of 1.4 million barrels per day, to less than a million barrels per day.

This happens because many Indonesia’s oil producing fields are mature and declining in production. While rich-oil countries are trying hard to increase their output with the application of new technologies and intensive explorations, Indonesia seems effortless in retaining or increasing the level of production and isn’t showing any significant attempt to improve technologies needed.

On the contrary, the data on EIA shows the consumption of oil in Indonesia is continuing to rise throughout time. In 1980, Indonesia consumed 400,000 barrels of oil per day. Today, the oil consumption has tripled to the level of 1.2 million barrels of oil per day. With production is on the decrease and consumption is on the increase, it reached its climax in 2004, when oil consumption in Indonesia exceeded the amount of the country’s ability to produce. That year, Indonesia’s oil consumption reached a level of 1.2 million barrels a day, while the production is only measured 1.1 million barrels a day. Since then, Indonesia converted from oil exporter to oil importer country, the situation which has been responded already by OPEC by reviewing Indonesia’s membership in the organization, with Sudan and Brazil are prospective members to replace the position.

As consequence of the alteration from oil exporter to oil importer country, Indonesia has to cope with one substantial problem, it has to support financially people need for oil. In other words; oil subsidize. This is the answer why rising price of oil causes Indonesia an immense loss. Instead of a boost in economy, rising price of oil brings an increase in oil subsidize. In 2007, the rise of oil’s price tag to $96 per barrel caused a vast increase in Indonesia’s oil subsidize budget, which increased from $6.2 billion to $10 billion. Oversize amount of oil subsidize then caused a huge blow to the economy.

In the past, allocated funds in oil subsidize was intangible and didn’t actually exist. Indonesia suffered financial loss because of the loss of opportunity to export its oil, which had to be allocated to supply people need in preference to increase income from selling it abroad. Today, Indonesia’s oil subsidize has changed its meaning from a loss of opportunity to a tangible expenditure, which means a bigger problem to deal with. Whether to improve the number of oil production, to reduce the number of oil consumption, or to shift to an alternative energy, it is time for the government to consider one significant change in the management of Indonesia’s natural resources.