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Indonesian Energy: Rediscovering prowess on the world stage

After a period on the sidelines, Indonesia is now back again right at the forefront of international energy geopolitics having simultaneously reactivated its OPEC membership and been inaugurated into the International Energy Agency (IEA).

On the face of it, Indonesia appears an unlikely addition to the oil exporters’ cartel given that the country consumes about twice as much crude as it pumps (last year being lumbered with an oil-import bill of close to USD 12 billion) thus placing it fundamentally at odds with OPEC’s historic mission of maintaining a high price. But, according to Widhyawan Prawiraatmadja, Indonesia’s freshly appointed governor to the organization, such an analysis “overlooks OPEC’s own journey from swing producer to base producer and its evolving priorities from artificially striving to prop up prices to defending market share.” “They’re seeking out new markets and as Asia’s lone constituent, we’ll provide that vital link to the region where demand is growing fastest,” he reasons.

Meanwhile, Indonesia hopes that strengthening its cooperation with oil-producing countries will provide direct access to crude oil supplies. “We hope membership will enable us to go straight to the source of the crudes that we import by dealing with the NOCs directly. Right now there is an elaborate transaction chain of middlemen and third-party traders that we aspire to short-circuit,” explains Commission VII vice-chairman Satya Widya Yudha. “Indonesia could even start importing more than 300,000 b/d of crude supplies directly from OPEC members by the end of the year,” he indicates.

“Returning to OPEC is significant not only as it networks us into the world’s most prolific oil producers and renders us less dependent on the spot markets, but it also enables us to rekindle our gravitas on the world stage and reclaim our rightful guise as a mediator, counterweight and voice piece of both SE Asia and Asia’s largest Muslim community,” reflects Dr Subroto, a Suharto-era energy minister and formerly the longest serving secretary general of OPEC.

Taking Indonesia into the IEA, an agency dedicated to improving the mitigation system in the event of oil supply disruption, can very much be seen in the same light. “The logic is to streamline the communication channel between producers and consumers, suppliers and buyers, hydrocarbon and renewables communities and position ourselves as the bridge between different sides of the energy market,” declares Energy Minister, Surdiman Said. “Given IEA member’s strong propensity towards new and renewable energies, forging a strong relationship with them should also better expose us to their technology and know-how,” he argues

The full implications of Indonesia’s newfound hyperactivity on the world energy stage still remain to be seen. Some commentators are already suggesting that the South East Asian archipelago’s entry as the 13th member of OPEC will provide the pretext for raising the group’s production ceiling beyond the 30 million barrels a day mark at time when oil supply is already reaching saturation point and global oil prices tumbling. “Indonesia’s entry will hand the Saudis the perfect excuse hike the production ceiling to as much as 33 million barrels,” predicts OCBC’s Barnabas Gan, although other analysts point out that the cartel which supplies 40 percent of the world’s oil, is already producing more than its approved quotas so any change would be purely symbolic.

“Countries like Venezuela and Iran really want to see Saudi Arabia and the UAE slash production whereas the Saudis themselves are striving to keep prices lower for longer so as to really drive out some of the over-investment we’ve been witnessing across the market…The coming on-stream of shale and unconventionals has really distorted the supply fundamentals and the Saudi’s are keen to rebalance the equation by pushing out some of this excess supply and fashioning a more sustainable long-term market,” concludes Bernstein’s oil and gas analyst, Neil Beveridge.

Article by: Louis Haynes

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