Indonesia plans to rejoin the Organization of Petroleum Exporting Countries (OPEC) under the condition that it is not required to cut its oil production, which has been dwindling in recent years.
Indonesia withdrew from OPEC last November after the 14-member group slashed down production by 1.2 million barrels of oil per day (bopd) to reduce the glut in the global market. The group later agreed in May to further push down output by 1.8 million bopd until the end of March next year.
Despite the latest development, the government revealed on Monday that it wanted to reactivate Indonesia’s membership in OPEC as expressed through a letter sent to the group on May 24. The move was in response to a request from major oil exporters Saudi Arabia and the United Arab Emirates.
“Energy ministries of Saudi Arabia and UAE requested that we rejoin OPEC,” Energy and Mineral Resources Ministry spokesman Sujatmiko said. Indonesia, according to both countries, “has a role to balance OPEC’s interests,” he further said.
Sujatmiko added that Indonesia was interested in the offer but against lowering its own production.
Under OPEC’s initial production cut commitment, Indonesia was subject to reduce its production by 5 percent, or around 37,000 bopd, from this year’s target of 815,000 bopd - 32,000 bopd more than Indonesia could tolerate. Such a reduction in production could also put pressure on the state budget as the Finance Ministry is looking to collect Rp 101.93 trillion (US$7.5 billion) in both tax and non-tax revenues this year from the oil and gas sector.
Separately, Energy and Mineral Resources Deputy Minister Arcandra Tahar confirmed that the government had sent a letter to OPEC.
“Several countries approached us and told us to rejoin OPEC, but we responded saying OPEC’s strategy to cut production was not in line with our national priorities - That’s why we left,” he said as quoted by Reuters. Indonesia’s withdrawal from OPEC late last year was its second exit from the group. It made a similar move in 2008 and reactivated its membership, which required an annual payment of €1.2 million, in early 2016.
The country suspended its involvement in OPEC almost a decade ago when it shifted from being a net exporter to a net importer of crude oil to fulfill national demand for refined fuel of around 1.6 million bopd.
Data from the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) indicates that domestic ready-to-sell production, locally known as lifting, reached around 830,000 bopd last year, slightly higher than this year’s target of 820,000 bopd. The Indonesian Crude Price (ICP), a benchmark to calculate non-tax income in the state budget, fell by almost 5 percent to US$47.09 a barrel in May from the previous month despite global efforts to lower oil production.
In the first five months of this year, the ICP averaged at $49.9 a barrel, higher than $45 a barrel estimated in the 2017 state budget. “If the oil price keeps hovering below $50 a barrel, it will be hard to attract investors to invest and conduct exploration activities in the oil and gas sector,” Energy and Mineral Resources Minister lgnasius Jonan said.
Jonan also said the government was currently in a wait-and-see mode following the decision of several countries, namely Bahrain, Egypt, Saudi Arabia and the UAE, to cut ties with Qatar, a top liquefied natural gas and condensate shipper, on Monday based on allegations it supported extremism and efforts to disrupt regional stability.
As a result, Brent crude, a global benchmark for oil value, rose 1.24 percent in early trading in Asia on Monday to $50.57 a barrel. Meanwhile, West Texas Intermediate rose slightly by 0.9 percent to $48.08 a barrel.
Jakarta Post, Page-13, Tuesday, June 6, 2017
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