Money

Indonesia's Running Out of Oil Reserves, But That Doesn't Mean It's Running Out of Oil

Yeah, there is a difference, but really either one is going to hurt your wallet.
April 6, 2018, 9:37am
Photo by Rosa Panggabean/ Antara Foto/ via Reuters

Theres a new trend in Indonesia's halls of power—a rise of public officials pushing doomsday scenarios about the eventual collapse of the nation.

First it was 2019 presidential hopeful Prabowo Subianto's dark claims that he had access to "studies," that predicted a total breakdown of Indonesian society by the year 2030. Turns out those studies Prabowo was reading were actually chapters from a fictional sci-fi thriller called Ghost Fleet: A Novel of the Next World War.

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Now it's Arcandra Tahar's turn. This deputy minister of energy and mineral resources recently warned reporters that Indonesia was on the fact-track to running out of oil. How fast, exactly? How's 12 years' time sound? Pretty fast, right? Well, Arcandra later revised his prediction to say that it could happen even sooner than that.

"Maybe it won't take 11 to 12 years, because the production will decline," he told the press. "It could even drop to 700,000 bpd (barrels-per-day) next year."

Indonesia's oil reserves currently total 3.3 billion barrels, Arcandra explained. Without opening up new oilfields, the country is going to totally deplete its oil reserves in a little over a decade. At that time, the country will be entirely dependent on oil imports, an embarrassing turn for a nation that was once one of the world's top oil producers.

But here's the thing—none of this is new. Indonesian officials have been warning of declining oil production for years. In 2012, the country's then energy minister Gusti Muhammad Hatta said we were going to run out of oil by 2022. Similar claims made headlines in 2013 and 2014, and later, in 2015, officials were sounding the alarm that the final drop of oil will run out by 2026.

It's pretty easy to freak out over headlines like these. In a country as price conscious as Indonesia, wonky topics like food security and annual oil production levels are campaign talking points. That's because even the slightest increase in the cost of oil can send ripples through the national economy, affecting everything from the cost of groceries to the price of electricity.

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And then there's the impact on the strength of the rupiah.

"If fuel imports increase, then we need more US dollars to pay for it," said Pri Agung Rakhmanto, an energies analyst. "That can impact the exchange rate. The rupiah would become weak, and public goods will get more expensive."

Basically, a decline in national oil production means a decline in your bank account. And Indonesia's oil production is definitely on the decline. In 2006, oil exports totaled 25 percent of all state revenue. Ten years later, the same exports account for less than five percent.

"All activities, from the economic to the social, are nothing without it (oil)," said Komaidi Notonegoro, the executive director of the research institute ReforMiner. "I'm worried we would lose our competitiveness compared to other countries. It's very possible that it happens."

But it doesn't have to be this way. Here's why: Indonesia hasn't used up all the oil sitting beneath the earth, it just stopped looking for it. In 2012, Indonesia spent $1.3 billion USD on new oil and gas exploration. By 2016, that figure was in free-fall, plummeting to $100 million USD, a decline of 92 percent.

Why did Indonesia stop looking for new oil fields? Well, for one, it hasn't been able to sell off the licenses to the oil fields it already has. Last year, the government put 10 oil blocks up for tender. It was only able to sell-off half of them. It's put another 24 oil and gas blocks out for tenders this year as part of a push to bring in $200 billion USD in investment in the next ten years. In an effort to sell off most of these blocks, the central government also dramatically cut regulations and licensing times, some by as much as by half.

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That's because one of the reasons behind foreign oil and gas company's reluctance to invest in these new blocks is a lack of clear regulations from the central government. It costs a lot to open up a new oil field, and few companies are willing to invest in such a costly, long-term project when the government keeps changing the law.

“The law is problematic, and this can also cause uncertainty in tax, licensing, and contract extension,” Agung told VICE, explaining that all this uncertainty has a way of scaring investors off. “And who even wants that? Absolutely no one.”

Then there's the fact that the price of oil dropped from more $100 USD a barrel in March of 2014 to $67 USD a barrel in March of this year. Most of the unexplored oil and gas blocks are in Indonesia's under-developed east, out in Sulawesi, Kalimantan, and Papua, all places where a lack of necessary infrastructure makes it even more expensive to pull new oil out of the ground.

"Investment is just more expensive than in western Indonesia, because eastern Indonesia is relatively far behind if we look at its infrastructure," Komaidi told VICE. "So we need to build the infrastructure first."

Then there's the other solution—just use less oil. Indonesia became a net-importer of oil in mid-2002 when consumption outpaced production levels. It's never been able to reverse this trend, and today, national oil production doesn't even cover half of what the nation uses annually.

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I know what you're thinking out there in any of our traffic jammed cities—that's because there are too many cars—but what is really burning through all this oil is Indonesia's electricity sector. On average, about half of the country's electricity comes from power plants that run on oil.

That means a shift to renewable energy would surely slow Indonesia's oil consumption, maybe long enough to get that sector back on-track. The central government already plans to increase the use of renewables from 7.7 percent in 2016 to 23 percent in 2025. But nationwide, only three out of 34 provinces submitted plans to construct a renewable energy plant.

Yet even in worst-case scenarios, ones where Indonesia is completely out of oil, it isn't as dark a future as some politicians paint it to be.

"Let's say we run out of oil, Indonesia will still be ready to face it," said Fahmi Radhy, an energies and economics expert at Yogyakarta's Universitas Gadjah Mada. "We're not going to collapse by 2030."

So take a breath, doomsday is still pretty far away.