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Declining oil reserves and high crude prices have forced
Indonesia to pull out of the oil cartel. Despite being one
of the oldest members of OPEC, Indonesia has failed to take
advantage of a potential windfall of petrodollars. Developed
nations like the US and Europe are no longer the driving
forces behind the surge in demand for oil. Emerging economies
are radically changing the global energy markets through
their sheer size and pace of economic growth. As a result,
oil prices are shooting up alarmingly, while exploration
of new reserves has become increasingly difficult. In the
process, even oil exporting countries have become net importers.
The latest example is Indonesia, the only Southeast Asian
nation in the Organization of Petroleum Exporting Countries
(OPEC).
Struggling to keep up with its oil production quotas within
the OPEC and reduced to the status of a net oil importer,
Indonesia has decided to quit OPEC by the end of 2008. The
move has been triggered by Indonesia's disappointment over
OPEC's unwillingness to raise output, which pushed the cost
of oil above $120 a barrel. Indonesia has seen its influence
within the organization vanishing as its oil production
fell, even as the organization gained more international
clout with the entry of Angola and the rejoining of Ecuador
in 2007. Indonesia's total crude oil production has dropped
by 40% to around 860,000 barrels a day. The nation's current
output quota for crude oil, as set by OPEC, is 1.45 million
barrels a day, well above its production capacity, resulting
in a deficit of $794 mn in its oil trade accounts.
According to the US Energy Information Administration (EIA),
Indonesia's crude oil output has fallen to abysmally low
levels due to ageing oilfields. This is hastened by years
of negligence and scarcity of investment. Though there are
huge oil and gas fields to be explored, in east Java, foreign
companies remain skeptical about carrying out oil exploration
in Indonesia because of the absence of proper regulatory
regime. The Asian financial crisis in 1997-98 also shattered
the confidence of the nation and investment in oil exploration
has stagnated. Since then Indonesia's production, largely
concentrated in northern Sumatra region, has come to a standstill.
The disagreement that is holding up the expansion of oilfields
close to the central town of Cepu is another example of
the obstacles that are affecting Indonesia's oil and gas
sector. With more than 600 million barrels of projected
oil reserves, Cepu can firmly catapult Indonesia as an oil
exporter. Indonesia's state-owned oil company Pertamina
and the US-based Exxon Mobil have been engaged in negotiations
since 2001 over how to share revenue from the field.
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