Friday, June 10, 2005

Oily road for rupiah

Indonesia, by definition, is no longer eligible as member of Organization of Petroleum Export Countries (OPEC) due to its reverse status as net oil importer country since last year.

Currently ranks seventeenth in world oil production, the country produced a gross average of 1.146 million barrels of oil per day (bopd) in 2003, down eight percent from the previous year's average of 1.251 million bopd.

The Energy Ministry reported that crude oil accounted for 1.013 million bopd of the total, while condensate production averaged 133,800 bopd. On a monthly basis, crude and condensate production declined from 1.187 million bopd in January to 1.106 million bopd in December 2003. This marks the tenth straight year of production declines, down from 1.528 million bopd produced in 1993.

Indonesia's oil production had continued to slip last year. Statistics shown last year Indonesia’s crude oil and condensate production dropped by 4.5% to 1.095 million bopd.

Centre for Global Energy Studies in its Global Oil Report Market Watch for September-October estimated Indonesia’s oil output in September 2004 at 963,000 b/d, 436,000 b/d below the country's OPEC quota. The country became a net oil importer during the second quarter, and production capacity shows little sign of recovering any time soon.

CGES said that Indonesia's oil production capacity looks set to continue to decline this year. At the same time, domestic oil consumption is set to increase even higher than economic growth meaning that Indonesia needs more hard currency to import fuel oil and put more pressures on Indonesian rupiah.

Rupiah is hovering around 9600 against US dollar, well below government target of 8800 for 2005 year. Central Bank governor Burhanuddin Abdullah stated this week his hope that Indonesia could resume its position as net oil exporter to strengthen rupiah. Why?

Look at our balance on oil export and import. Yes we booked net surplus on crude oil in the period of January-April 2005. But deficit on refined oil products increased dramatically.

Indonesia exported US$511 million of refined products but imported US$2.72 billion at the same time resulting in net import of US$2.09 billion of oil and its refined products in the period, jumped from US$897 million in the same period last year.

This deficit is keep increasing as Indonesia's oil production will continue to decline for at least the near-term. Even if new investment poured in tomorrow, it would take several years for greenfield projects to begin production. The age of the vast majority of the country's existing fields means that their production will continue to drop without greater investment in oil recovery.

It is within the government's capacity to turn things around - clear and fair regulations, less bureaucracy and improved fiscal incentives are some attainable goals that would generate the investment necessary to increase oil production, not just crude oil but especially refined products with new investment in refineries. So, for the time being, it is an oily road for rupiah.



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