Indonesias economic growth surpassed expectations in 2004, and accelerating growth has continued into 2005. Indonesias real gross domestic product (GDP) grew at a rate of 5.1 percent in 2004, up from 4.9 percent in 2003. Real GDP growth is forecast to be 5.5 percent for 2005, although imbalances in the macroeconomic picture, such as increasing budget deficits caused by oil price subsidies on the local market, could lead to future problems.
Tension exists between the central government in Jakarta and leadership at the regional level. The distribution of oil and gas revenues between the central government in Jakarta and regional governments in areas which produce oil and gas has been regularly disputed. Since Indonesias transition to democracy in 1999, the countrys regional governments have been pressing for a greater share of oil and gas revenues.
While Indonesia is still a member of the Organization of Petroleum Exporting Countries (OPEC), it became a slight net importer of oil in 2004, and its oil production has continued to decline. The current government is reportedly considering leaving OPEC, but no decision to do so has been announced.
Indonesia currently holds proven oil reserves of 4.7 billion barrels, down 13% since 1994. Much of Indonesias proven oil reserve base is located onshore. Central Sumatra is the countrys largest oil producing province and the location of the large Duri and Minas oil fields. Other significant oil field development and production is located in accessible areas such as offshore northwestern Java, East Kalimantan, and the Natuna Sea. Indonesian crude oil varies widely in quality, with most streams having gravities in the 22o to 37 o API range. Indonesias two main export crudes are Sumatra Light, or Minas, with a 35 o API gravity, and the heavier, 22o API Duri crude.
In the first eight months of 2005, Indonesian crude oil production averaged 944,000 barrels per day (bbl/d), down from the 2004 average of 967,000 bbl/d and continuing the decline of the past several years. The decline is due mainly to the natural fall off of aging oil fields, a lack of new investment in exploration and development, partially due to regulatory hurdles. Besides crude oil, Indonesia also produces approximately 194,000 bbl/d of natural gas liquids and lease condensate, which are not part of its OPEC quota. Indonesia is the only Southeast Asian member of OPEC, and its current OPEC crude oil production quota is 1.45 million bbl/d, well above its production capacity. Since becoming a net oil importer in 2004, Indonesia has reportedly been considering eventually leaving OPEC, but no final decision to do so has been made.
The majority of Indonesias producing oil fields are located in the central and western sections of the country. Therefore, the focus of new exploration has been on frontier regions, particularly in eastern Indonesia. Sizable, but as of yet unproven, reserves may lie in the numerous, geologically complex, pre-tertiary basins located in eastern Indonesia. These regions are much more remote and the terrain more difficult to explore than areas of western and central Indonesia.
A study released in August 2002 by Indonesias Directorate General of Oil and Gas shows that oil reserves in the Cepu block alone, located in Central/East Java, are close to 600 million barrels, about half of which are considered recoverable. After lengthy negotiations, Pertamina and ExxonMobil signed a contract in September 2005 for the development of these reserves. ExxonMobil had owned the rights to the block before, but had refrained from further development due to the fact that their contract ran out in 2010. Recent changes in Indonesian law allowed for an extension of ExxonMobils concession, which would have exceeded the 20-year sunset provision under previous law. The Cepu block is expected to begin production by 2009, eventually reaching a peak output of 180,000 barrels per day (bbl/d). ExxonMobil and Pertamina will each have a 45 percent stake in the project, with the remaining 10 percent held by the provincial governments of East Java and Central Java.
China National Offshore Oil Corporation (CNOOC) became the largest offshore oil producer in Indonesia in January 2002, after purchasing nearly all of Repsol-YPFs assets in the country for $585 million. Pertamina is a CNOOC partner in each Production Sharing Contract (PSC).
Companies producing from existing fields are attempting to increase recovery rates and to prolong the life of the fields. Caltex, which has the largest operation of any multinational oil company in Indonesia, undertook a steam injection project at the Duri field on Sumatra, but production continues to decline as the fields reserves are depleted. Overall, Caltexs production now stands at around 530,000 bbl/d, down sharply from 660,000 bbl/d in early 2001.
Smaller fields have offset some of the decline in production from the more mature fields. Unocals West Seno field, under development offshore from East Kalimatan, has been producing around 60,000 bbl/d since early 2005, when development was completed. Even with small new discoveries under development, and the major Cepu block fields on the horizon, Indonesias oil production is not likely to rise markedly, due to the continuing decline of mature fields.