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Indonesia Unhappy with Costly Oil, Quits OPEC

Reuters
Wednesday, 28 May 2008 | 10:03 AM ET

Indonesia will quit the Organization of the Petroleum Exporting Countries because as a net oil importer it is not happy with high global crude prices, the energy minister said on Wednesday.

The country, an OPEC member since 1962, has seen its influence within the group wane as its production declines, even as the producer group gains more global clout with the admission of Angola and the rejoining of Ecuador last year.

On Saturday Jakarta was forced to make an unpopular fuel price hike as it struggled to bear the cost of importing gasoline and diesel at record high prices and selling it at heavily subsidized prices, one legacy of being a major oil producer for over a century and OPEC's only Asian member.

"Actually there is also one rationale - that we are not happy with the high oil prices. Because we are an oil producer and we are an oil consumer," energy minister Purnomo Yusgiantoro said.

Purnomo said Indonesia will become an OPEC member again if it becomes a net oil exporter again in the future.

"We learnt from Ecuador, they pulled out and they came back again to OPEC. In the case of Indonesia, if our production comes back to the level that gives us the status of a net oil exporter, I think we can also go back again." OPEC declined to comment.

Global benchmark U.S. crude has risen by more than 30 percent this year.

It was trading just above $127 a barrel on Wednesday.

However, Indonesia's crude output has fallen in recent years due to ageing wells, a lack of investment, and the absence of any major oil finds.

Its status as a net importer means it would benefit from lower oil prices, putting it at odds with other OPEC members, who favor higher prices.

Earlier this month, President Susilo Bambang Yudhoyono said it may quit the group, citing the decline in crude oil output.

It was not clear when Indonesia will formally leave OPEC.

It has a paid up membership until the end of the year.

"The membership will expire by the end of the year, but I think soon...we are pulling out from OPEC," Purnomo told a meeting of foreign journalists.

Expanding Cartel

Kurtubi, an energy analyst at the Centre for Petroleum and Energy Economics Studies in Jakarta, said Indonesia was quitting the group because it was not satisfied with the manner in which OPEC was dealing with high oil prices.

"It is not enough to blame speculators only on oil prices, because if there is significant additional supply from OPEC, oil prices will go down," Kurtubi said.

Indonesia's status as a net oil importer has prompted many analysts to question its continued membership of OPEC, especially at a time when the group has been expanding.

Angola, Africa's second largest producer, joined more than a year ago and will add up to 2 million bpd to the OPEC by 2009, while Ecuador added some 510,000 bpd when it rejoined OPEC last November as its smallest producer.

Indonesia has aired the possibility of leaving OPEC before.

In 2005 a group of advisers to the government recommended it leaves partly because of the financial costs of membership.

Purnomo said Indonesia needed the Middle East for future oil supplies.

"From a political standpoint, we need the Middle East as an oil supplier in future," Purnomo said.

Indonesia sees daily oil output of 927,000 barrels per day this year, down from 950,000 bpd in 2007, and well short of consumption of around 1.2-1.3 million bpd.

It raised fuel prices by an average of just under 30 percent on Saturday, as it struggles to plug the fiscal hole left by soaring crude prices.

But fuel is still subsidized in the country where millions of people live on less than $2 a day, with the government expected to spend billions of dollars keeping fuel costs among the lowest in Asia.

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