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Indonesia Petroleum, Liquefied Natural Gas, and Coal
Petroleum
Indonesia's oil production was formally governed by a
quota
allocation from OPEC. At the March 1991 OPEC ministerial
meeting,
Indonesia's quota was set at 1.445 million barrels per
day, below
the country's estimated production capacity of 1.7 million
barrels
per day. Indonesia's quota represented about 6 percent of
total
OPEC production. About 70 percent of Indonesia's annual
oil
production was exported on average during the late 1980s,
but
domestic consumption was increasing steadily and reached
half of
annual oil production by 1990.
Indonesia's oil industry is one of the oldest in the
world. Oil
in commercial quantities was discovered in northern
Sumatra in
1883, leading to the establishment of the Koninklijke
Nederlandsche
Maatschappij tot Exploitatie van Petroleum-bronnen in
NederlandschIndië (Royal Dutch Company for Exploration of Petroleum
sources in
the Netherlands Indies) in 1890, which was merged in 1907
with the
Shell Transport and Trading Company, a British concern
that had
been drilling in Kalimantan since 1891, to form Royal
Dutch Shell.
Royal Dutch Shell dominated colonial oil exploration for
more than
thirty years. By 1911 Royal Dutch Shell operated
concessions in
Sumatra, Java, and Kalimantan (then called Borneo), and
Indonesian
oil was almost 4 percent of total world production.
Indonesia's
most important oil fields, the Duri and Minas fields in
the central
Sumatran basin, were discovered just prior to World War II
by
Caltex, a joint venture between the American companies
Chevron and
Texaco, although production did not begin until the 1950s.
By 1963
the Duri and Minas oil fields, located in Riau Province
near the
town of Dumai, accounted for 50 percent of oil production.
The postindependence government increased its control
over the
oil sector during the 1950s and 1960s by increasing
operations of
several government-owned oil companies and by stiffening
the terms
of contracts with foreign oil firms. In 1968 the
government
companies--Indonesian Oil Mining company (Pertamin),
National Oil
Mining Company (Permina), and the National Oil and Gas
Company
(Permigan)--were consolidated into a single operation, the
National
Oil and Natural Gas Mining Company (Pertamina). At this
time, a new
form of contract--the production-sharing contract--was
introduced.
A production-sharing contract split total oil production
between
the contractor and the government, represented by
Pertamina, and
allowed the government to assume ownership of structures
and
equipment used for exploration and production within
Indonesia.
Indonesia's contract terms were considered among the
toughest in
the world, with the government in most cases receiving 85
percent
of oil produced once the foreign company recovered costs.
Annual oil production in Indonesia peaked in 1977 at
over 600
million barrels. The official price of Minas crude was
then about
US$14 per barrel, a substantial rise from the 1973 price
of about
US$4 per barrel as a result of OPEC's successful market
manipulations. Prices continued to soar in 1981, reaching
US$35 per
barrel, and oil exports peaked at US$15 billion, or about
70
percent of total export earnings. In 1982, however,
production
declined, reaching a low of 460 million barrels and the
oil market
began to weaken that same year, when Indonesia's Minas
crude was
priced at US$29. The market collapsed in 1986, bringing
the Minas
price to below US$10 per barrel. Recovery of oil prices
began
slowly, and by 1989 Minas was priced at about US$18 per
barrel.
Total production in 1989 was almost 500 million barrels,
and oil
exports were valued at US$6 billion.
Indonesia had proven oil reserves in 1990 equal to 5.14
billion
barrels, with probable reserves of an additional 5.79
billion
barrels. Throughout the archipelago there were sixty known
basins
with oil potential; only thirty-six basins had been
explored and
only fourteen were producing. The majority of unexplored
areas were
more than 200 meters beneath the surface of the sea.
Indonesia's
oil reserves were usually found in medium- and small-sized
fields,
so that continued exploration was vital to maintain
production and
known reserves.
In 1989 and 1990, the government loosened some
provisions for
new contracts to stimulate exploration, particularly in
frontier
areas. Improved oil market conditions in the late 1980s
also
contributed to a surge in production-sharing contracts.
Fifty-seven
of the 100 contracts active in 1992 were signed from 1987
to 1991.
The newer contracts committed US$2.8 billion in
exploration during
the 1990s. Production from existing oil fields was still
dominated
by Caltex's operations in Sumatra, which accounted for 47
percent
of Indonesian oil production in 1990. Twenty foreign oil
companies,
primarily United States-based, were active producers in
1990.
Pertamina operated eight petroleum refineries with a
total
capacity to produce 400,000 barrels per day of a variety
of
distilled products for domestic use and export. The
Indonesian
government subsidized the domestic prices of distillates,
and in
spite of several price increases during the 1980s, prices
in
Indonesia were well below international market prices by
1990. For
example, kerosene, used primarily for cooking, was priced
at Rp190
per liter following a 15 percent price hike in May 1990;
the price
of kerosene in Singapore was then equivalent to Rp643 per
liter and
in the Philippines, Rp512 per liter. The total cost of
fuel
subsidies amounted to Rp2.6 trillion (US$1.3 billion) in
FY 1990.
Pertamina forecast an increase in domestic demand for
distilled
products of 7 percent per year, and hoped to meet this
demand and,
simultaneously, to expand exports. Four new refineries
with a total
capacity of 500,000 barrels per day intended entirely for
export
were in various stages of planning in 1990.
Data as of November 1992
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