Building a world of
resilient communities.

MAIN LIST

 

OPEC Member Burdened by High Oil Prices

JAKARTA, Indonesia, Feb. 25 - What's good for OPEC is no longer good for one of its smallest members and its only representative from Asia.

While most oil ministers, from Saudi Arabia to Venezuela to Libya, say high prices are here to stay, one oil minister may be trying to talk prices down.

Purnomo Yusgiantoro, the minister of energy and mineral resources for Indonesia, said that a rough consensus had formed among oil ministers from the Organization of the Petroleum Exporting Countries that oil prices were too high. "It has got to be lower than what we see today, because even OPEC doesn't like to see the high oil price," Mr. Purnomo said in an interview.

That consensus may not be as widely shared as Mr. Purnomo says. There are growing indications that OPEC's larger producers are actually getting more comfortable with higher oil prices.

That puts Indonesia in a unique - and increasingly odd - position that reflects how its standing within OPEC has changed as Indonesian oil production declines and domestic consumption grows.

For the last two years, Indonesia has not been able to meet its share of production assigned by OPEC, which stands at 1.4 million barrels a day. The country produced an average of 1.1 million barrels a day in 2004, down from 1991's average of 1.6 million barrels a day, according to figures compiled by the United States Energy Information Administration.

And while the world's producers struggled last year to meet runaway demand, Indonesia suffered the final infamy for a member of the oil-exporters' club: during the last four months of 2004, the country had to import some oil. Now, the government is considering leaving OPEC.

Paradoxically for an oil producer, the high international prices are hurting Indonesia's public finances because the government subsidizes its domestic fuel sales, fixing a lower price at home than on the international market. With rising costs, Mr. Purnomo said that the cabinet planned to announce a 29 percent increase in retail prices for gasoline and diesel fuel on Monday night. The measure, he acknowledged, will be unpopular and is likely to prompt protests.

But these concerns are far from the minds of Mr. Purnomo's counterparts within OPEC, who are getting bolder in their public comments about where they think prices are headed. On Thursday, Ali al-Naimi, Saudi Arabia's oil minister, said he thought prices would remain at $40 to $50 a barrel in 2005. His remarks echoed a similar message from the last meeting of OPEC ministers, in January, when many said prices of $50 a barrel were not hurting the world economy.

Acknowledging such sentiments, Mr. Purnomo cautioned that OPEC ministers would not necessarily agree to increase production at their next meeting, on March 16 in Isfahan, Iran. International oil demand tends to drop each spring, he said, and OPEC oil ministers will be wary of adjusting supply before seeing how big this year's drop may be.

Mr. Purnomo said he personally would like to see a drop in Indonesian crude oil prices by late spring to $35 a barrel, the price assumed in the national budget for calculating the cost of domestic gasoline and diesel subsidies. Indonesian crude trades at a slight discount to the much more heavily traded West Texas Intermediate and Brent crudes. In New York, crude oil futures for April delivery rose 10 cents to $51.49 a barrel. Prices have risen 44 percent in the last year.

The increase in retail prices of gasoline and diesel in Indonesia is aimed at cutting the high cost of subsidizing domestic consumption and freeing more oil for export. Gasoline now costs 75 cents a gallon in Indonesia, while diesel costs 68 cents. Last year, the government spent $6.8 billion on subsidies, a seventh of all government spending. Mr. Purnomo's comments, made in a 45-minute interview in his high-ceilinged, elegant receiving room, are nonetheless important both in terms of a rare willingness to speak so publicly about Indonesia's position and his assessment of the consensus among other oil ministers.

Current world oil prices, Mr. Purnomo said, are so high they are starting to feed inflation in industrialized countries, driving up the cost of construction equipment and other capital goods oil exporters need to buy overseas. The Indonesian government announced plans last month for huge spending increases for roads, pipelines and other infrastructure projects, including $11 billion for energy-related projects.

OPEC ministers are not likely to adopt a new target range for oil prices, as this is a step that still requires considerable study, he said. OPEC set a price range, or band, of $22 to $28 a barrel in 2000 but abandoned it on Jan. 30 at the meeting in Vienna.

A panel of top OPEC officials led by Saudi Arabia is studying whether to introduce a new price range, but this is unlikely to produce any specific action soon, Mr. Purnomo said. "OPEC now is removing the price band for the time being."

Mr. Purnomo predicted that the increases in fuel prices could result in street demonstrations, but said that the government would not retreat.

While government officials have said they would increase prices 30 percent to 40 percent, Mr. Purnomo is the first to specify a day for the announcement and the first minister to specify the amount. He said the 29 percent increase was "an arithmetic average" of increases for various grades of gasoline and diesel, and declined to give specific increases by refined product.

The proceeds from higher prices will be used for schools, hospitals and poverty programs, he said.

Prices for kerosene, now at a quarter of world levels here, will not be changed for political reasons, he said. The poor commonly use kerosene for cooking.

Mr. Purnomo said he had just received a preliminary report from an international oil company suggesting the discovery of a major new oil field in Indonesia. Declining to say what oil company had made the find or where the field was located, Mr. Purnomo said the new field looked as though it could be similar in size to the large Cepu field in eastern Java that Exxon Mobil wants to develop.

Mr. Purnomo said two wells had already struck oil and had found an underground reservoir of oil roughly 300 meters thick, or 1,000 feet. More wells need to be drilled to assess the geographical area that the reservoir underlies, he said.

Exxon Mobil estimates that the Cepu field could produce 170,000 barrels a day, which would increase Indonesian oil production by a fifth.

Exxon Mobil has been unable to begin production at Cepu for the last three years because of a dispute with the Indonesian government over how to share the revenue from the field. Maman Budiman, the vice president for planning, commercial and public affairs at Exxon Mobil Oil Indonesia, said in an interview here on Wednesday that the company asked the newly elected government of President Susilo Bambang Yudhoyono in December to open negotiations after a preliminary deal fell through last summer, but had received no reply.

Mr. Purnomo said that he personally wanted to see Cepu go into production as quickly as possible, but that the issue was up to Pertamina, the government-owned oil company, and the ministry of state-owned enterprises.

Mr. Purnomo made headlines on Feb. 6 when he told a parliamentary committee that he would form a team to review whether Indonesia should pull out of OPEC, a move advocated by populists here so as to save Indonesia's nearly $2 million in annual dues. OPEC officials in Vienna declined this week to comment on Indonesia's review. While Mr. Purnomo indicated a reluctance to pull out of OPEC, he noted that the final decision would have to be made by the Indonesian cabinet.

But in Friday's interview, the first he has granted to domestic or international media since that statement, Mr. Purnomo said that Indonesia's Ministry of Foreign Affairs opposed any withdrawal because it would hurt relations with Indonesian allies in the Mideast. Some in the government also feel that as one of the oldest members of OPEC, Indonesia should be wary of withdrawing.

Perhaps most important, it is not clear that Indonesia will lose its status as an oil exporter, Mr. Purnomo said. Recent discoveries should add 300,000 barrels a day to Indonesia's annual production over the next several years, offsetting declines of 16 percent a year from existing Indonesian oil fields and permitting the country to maintain overall production above a million barrels a day in the coming years, he said.

By comparison, output dipped to 950,000 barrels a day in December, a level Mr. Purnomo ascribed to some fields temporarily closing or reducing output for a variety of reasons.

What do you think? Leave a comment below.

Sign up for regular Resilience bulletins direct to your email.

Take action!  

Make connections via our GROUPS page.
Start your own projects. See our RESOURCES page.
Help build resilience. DONATE NOW.

Tags:  

Kashagan – Back to the drawing board?

The recent shutdown of Kashagan oil field in Kazakhstan represents one …

King Coal Is Dying a Slow Death in America

In cities choked by pollution and a world coming to grips with the realities …

Peak Oil Review - Apr 14

A weekly review including: Oil and the Global Economy, The Middle East & …

Did crude oil production actually peak in 2005?

Haven't we been hearing from the oil industry and from government and …

Talking Energy Reality

Read on to learn about Leslie Moyer’s work with artists and energy, …

Fracking politics - headlines

•Why US fracking companies are licking their lips over Ukraine …

Five pathways to post-capitalist 'renaissance' by a former oil man

In my first post on Leggett's new book, I focused on his analysis of our …