Indonesia Rejoins Cartel after Six Year Hiatus
The Organization of Petroleum Exporting Countries (OPEC) welcomed Indonesia back into the fold as the 13th member of the cartel, the Organization said in a press release on September 8, 2015. Indonesia submitted an official request to reactivate its membership, and the formality will be finalized in the next OPEC Conference on December 4, 2015. The Asian country initially suspended its membership in January 2009. It will be the only Asian member country of the cartel.
In the OPEC release, the group said: “Indonesia has contributed much to OPEC’s history. We welcome its return to the Organization.”
Indonesia Background
In May 2008, Indonesia’s outdated oil industry forced the country to become a net oil importer. At the time, Brent prices hovered around $130/barrel, stressing the country’s balance sheet and eventually forcing them to depart from OPEC. Indonesia’s energy minister said the nation would rejoin OPEC if it became a net oil exporter in the future. At the time, fuel was heavily subsidized considering the average Indonesia resident lived on less than $2 per day. The country rode out its year-long membership and left at the end of 2008.
Indonesia’s primary energy consumption grew by 44% from 2002 to 2012, according to the Energy Information Administration, weighing down export volumes and denting revenues. Oil and gas alone accounted for about 24% of state revenues in 2012, even with the reduced exports. Notably, Indonesia was the world’s fourth largest exporter of liquefied natural gas in 2013 and is the largest exporter of coal, shipping about 75% of its product abroad.
The Wall Street Journal reports Indonesia produces about 830 MBOPD and exports about 200 MBOPD of its domestic production. An additional 300 MBOPD is imported to meet its energy demands – more than half sourced from OPEC members. Based on July 2015 production levels, Indonesia would surpass Libya, Ecuador and Qatar to become the 10th largest oil producer, by volume, of the group.
Suresh Sivanandam, an analyst with Wood Mackenzie, said accepting a net oil importer to the cartel is a “perplexing” move, but might signal how desperate OPEC is becoming in the wake of the oil price crash. “OPEC is desperately looking for markets and retaining market share and there is a fit for them getting cozy with Indonesia,” said Sivanandam in an interview with the Financial Times. Even though the group is producing record amounts, it has actually lost market share on a year-over-year basis. OPEC oil now accounts for less than 33% of global consumption.
