Economy of Indonesia: Encyclopedia II - Economy of Indonesia - Oil and minerals sector

Economy of Indonesia - Oil and minerals sector

Indonesia is the only Asian member of the Organization of Petroleum Exporting Countries (OPEC) outside of the Middle East, and is the only OPEC member that is a net oil importer. In early 2005, Indonesian crude oil and condensate output was 1.07 million barrels per day. This is a substantial decline from the 1990s, due primarily to aging oil fields and a lack of investment in oil production equipment. In 1999, Crude and condensate output averaged 1.5 million barrels (240,000 m³) per day, and in the 1998 calendar year the oil and gas sector, including refining, contributed approximately 9% to GDP. This decline in production since the 1990s has been accompanied by a substantial increase in domestic consumption, about 5.4% per year, leading to an expected US$1.2 billion cost for importing oil in 2005.

The state owns all petroleum and mineral rights. Foreign firms participate through production-sharing and work contracts. Oil and gas contractors are required to finance all exploration, production, and development costs in their contract areas; they are entitled to recover operating, exploration, and development costs out of the oil and gas produced. According to President Susilo Bambang Yudhoyono, the nation is expected to deplete its crude oil reserves in about 2020.

Although minerals production traditionally centered on bauxite, silver, and tin production, Indonesia is expanding its copper, nickel, gold, and coal output for export markets. In mid-1993, the Department of Mines and Energy reopened the coal sector to foreign investment, with the result that the leading Indonesian coal producer now is a joint venture between U.K. firms BP and Rio Tinto. Total coal production reached 74 million metric tons in 1999, including exports of 55 million tons. The Indonesian Government hopes to surpass 100 million metric tons of coal production in 2002. Two US firms operate three copper/gold mines in Indonesia, with a Canadian and UK firm holding significant other investments in nickel and gold, respectively. In 1998, the value of Indonesian gold production was $1 billion and copper, $843 million. Receipts from gold, copper, and coal comprised 84% of the $3 billion earned in 1998 by the mineral mining sector.

Indonesia's fuel production has declined significantly over the years, owing to aging oil fields and lack of investment in new equipment. As a result, despite being an exporter of crude oil, Indonesia is now a net importer of oil and had previously subsidized fuel prices to keep prices low, costing US$ 7 billion in 2004 [4]. The current president has mandated a significant reduction of government subsidy of fuel prices in several stages [5]. In order to alleviate economic hardships, the government has offered one-time subsidies to qualified citizens. The economy is now undergoing a process of rebuilding after the tsunami that struck in December of 2004. The government has stated the cuts in subsidies are aimed at reducing the budget deficit to 1% of gross domestic product (GDP) this year, down from around 1.6% last year.

Adapted from the Wikipedia article "Oil and minerals sector", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki