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Indonesia May Drop out of OPEC

Reuters
Tuesday, 6 May 2008 | 3:48 AM ET

Indonesia is considering quitting the Organisation of Petroleum Exporting Countries (OPEC) as the country's crude oil output had declined, the country's President Susilo Bambang Yudhoyono said on Tuesday.

Indonesia is the Asia-Pacific's only member of the cartel, but its crude oil has fallen in recent years because of ageing wells and lack of investment.

"We are studying whether we have to stay in OPEC or leave. We are now a crude oil importer

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and our production has declined to below one million barrels," Yudhoyono told reporters. He was referring to the country's daily output.

The idea for Asia's only member of OPEC to leave the cartel has been around for a few years.

In 2005 a group of advisers to the government had recommended the country leave the group partly because of the financial costs of the membership.

Kurtubi, an energy analyst, said Indonesia should already have left the group because of its status as a net oil importer, which is different from the group's interests.

"Our interests now are different. As an importer, we want oil prices to come down as high oil prices put pressure on our budget. But exporters want a reasonable or even high price since it is their main source of revenue," Kurtubi said.

Indonesian joined OPEC in 1962, just two years after the group was founded in Baghdad, but parliament and a number of industry groups have been calling for the government to withdraw its membership.

Ageing oil wells and lack of investment in the oil and gas sector have pushed Indonesia's oil production to dwindle.

The government predicted Indonesia's average daily oil lifting at 927,000 barrels this year, down from 950,000 bpd in 2007.

The government faces difficult decisions over how to contain inflation and curb an expanding budget deficit as its subsidy bill balloons because of rising global oil prices.

With crude oil price already hovering around $120 a barrel Indonesia has to allocate 126.8 trillion rupiah ($13.77 billion) on fuel subsidies, or about 13 percent of this year's government spending.

President Yudhoyono said on Monday that the government is considering a fuel price increase of between 20-30 percent to safeguard the budget from rising oil prices.

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