Indonesia pockets less oil cash, fanning deficit concerns
Wed, Apr 10 2013
By Florence Tan and Randy Fabi
SINGAPORE/JAKARTA, April 10 (Reuters) – Indonesia’s oil export revenue is falling far below government expectations as output drops to a more than 40-year low, piling pressure on authorities to confront a widening trade deficit fuelled by energy subsidies that encourage consumption.
Aging fields and years of scant new discoveries mean Indonesia is exporting less crude, bringing home to the former OPEC member the $22 billion cost – 4 percent of economic output last year – of its generous subsidy programme.
Crude and oil products export revenue for the first two months of the year have fallen 23 percent to $2.2 billion compared to the same period last year, while oil imports by value are up 16 percent, according to the statistics bureau.
That has translated into an oil trade deficit of $4.9 billion so far this year, widening from $3.2 billion a year ago.
“Fuel consumption and imports are surging on cheap fuel, with subsidized prices some 60 percent below international prices, and buoyant domestic demand,” said Chua Hak Bin, head of emerging Asia economics global research at Bank of America Merrill Lynch.
“We expect the government to introduce some rationing scheme or hike subsidized fuel prices in the coming months to contain the escalating fiscal costs and widening oil trade deficit.”
President Susilo Bambang Yudhoyono could announce next week new measures to restrict the use of energy subsidies, which have provided Indonesians with the cheapest fuel in Asia.
But with elections looming next year, and memories of violent protests over fuel-price rises in 2005 and 2008, he is expected to bow to populist wishes and not scrap subsidies.
Instead, the president is considering a ban on the use of subsidised fuel by the nation’s 11 million private cars, a move that could save the government $8.6 billion this year and erase a fiscal deficit, a presidential adviser told Reuters.
Indonesia’s overall trade deficit widened to $330 million in February, up from $70 million the previous month.
Indonesia’s state budget for 2013 has set an oil output target of 900,000 barrels per day, but the country’s energy regulator SKKMigas said production was more likely to average around 830,000 bpd. That would be the lowest since 1969.
The government’s take of total oil and gas revenues is expected to be about $30 billion or about 20 percent of the budget for this year, according to SKKMigas, sharply lower than the one-third that oil and gas sales contributed to state coffers each year back when Indonesia was a net exporter and a member of the Organization of the Petroleum Exporting Countries.
Unless price increases can offset falling production or Indonesia can reverse the output decline, the contribution oil and gas makes to state will likely continue to fall.
Indonesia has often fallen short of production targets, with crude and condensate output declining at an annual rate of 3.8 percent between 1998 and 2011. The production decline has mainly impacted exports as Indonesia now keeps the bulk of its output for domestic use, but it has also had to increase its imports of refined products as subsidies push up the use of cheap fuel.
Indonesia has said it is expects to slow the output decline with enhanced oil recovery (EOR) projects at the Chevron-operated Minas and Duri fields in Sumatra and a ramp-up in production at ExxonMobil Indonesia’s Cepu block.
Yet those projects will stabilise rather than increase crude output, said FACTS Global Energy analyst H.S. Yen. Full production at the Cepu block has also been delayed until the third quarter of next year.
Indonesia’s crude export revenue will likely drop further this year as ample oil supplies weigh on prices while its top buyer Japan aims to reduce expensive oil imports for power use.
“This is definitely not great news for the trade deficit, but we have to remember that crude oil exports have not been a key driver of overall exports,” said Lim Su Sian, an economist with HSBC.
“The bigger issues actually lies on the import side, in particular the import of refined petroleum.”
Indonesia dropped out of OPEC at the end of 2008 as it turned to a net oil importer. Its net oil imports have run at about 400,000 bpd over the past two years.