Looming Oil Crisis Confronts New Government

KATADATA - The new government that will take office after July?s presidential election, will face a daunting task and a heavy burden. They will have to deal with huge workloads left by President Yudhoyono?s government in the energy sector.

Indonesia is currently on the verge of an oil crisis. Indonesia?s crude oil reserves is no longer adequate to meet its need, as it only has 14 percent of its oil reserves left. Within 30 years, Indonesia?s oil reserves has plummeted 68 percent. This is the fastest and the steepest fall in oil reserves in Asia.

The country?s large and leading oil blocks that until now contribute significantly to its total oil production are getting older and their productivity levels have decreased. Various methods and technologies, including enhanced oil recovery, have been implemented to overcome this issue. However, on average, the output of 10 large oil fields managed by multinational companies have sharply declined.

On the other hand, Indonesia?s oil consumption is rising to keep pace with its economic growth, as well as the increases in income and new car demand. At the time when the industry sector seeks to lessen its reliance on expensive fossil fuel, the transportation sector, in contrast, is thirsty for more oil. In fact, the transportation sector?s oil consumption growth reaches 6 percent per year on average. As a result, the transportation sector becomes the most dominant sector or consumes 75 percent of Indonesia?s oil consumption.

The problem is that the impact of the widening gap between Indonesia?s oil output and consumption does not end in the surge in oil or fuel import. The gap has serious, subsequent impacts on the state?s economy.

In addition to causing trade balance deficit, the increase in oil and fuel consumption and import is detrimental to the nation?s fiscal health, pushing up oil and gas deficit, as well as imposing a burden on foreign exchange reserves and Rupiah exchange rates.

To illustrate this point, when oil and gas deficit reached its highest level of minus US$1.85 billion in July 2013, the trade balance deficit also reached its highest level ever recorded in Indonesian history of minus US$2.3 billion. The huge demand for foreign exchange to cover oil and gas import has drained the country?s foreign exchange reserves that reached its lowest record of US$92 billion in August 2013. During the same period, Rupiah exchange rates plunged by 7 percent to IDR 10,900 per US dollar on average.

The upward trend in oil consumption and the downward trend in oil production are expected to prolong until the next five years, when the new government is in power. The increase in car sales by 7 percent per year during the period 2012-2018 will spark the increase in fuel consumption.

When the new government is in power, Indonesia is not just an influential oil importer. A report from Wood Mackenzie in 2013 revealed that Indonesia is expected to become the world?s largest fuel importer by 2018 and the largest contributor to fuel deficit in Asia Pacific region. In 2019, the gap projection between oil consumption and production will reach 1 million barrels.

Therefore, the new government will have to confront the challenge as well as the threat of an oil crisis. The heavy burden imposed by the surge in oil and fuel imports will pose a serious threat to the country?s trade balance, payment balance, foreign exchange reserves and Rupiah exchange rates.