INDONESIA - Part 1 - The Political Perspective & Petroleum Prospects.

Indonesia in 2003 will only produce 1.4m b/d of oil and condensates, down from 1.5m b/d in early 2001 and 1.6m b/d in 1997. Its oil production capacity this year will be 1.27m b/d, down from 1.3m b/d in early 2001, with its OPEC quota being 1.27m b/d. Its capacity to produce condensates, excluded from OPEC's quota system, is limited to 132,000 b/d, down from 200,000 b/d in early 2001.

The 2003 budget of Indonesia, Asia's only OPEC member, is based on an average oil price of $20.50/b, down $1.50/b from the 2002 level. Because its oilfields have begun to deplete, the country will find it difficult to increase production in 2003 despite Unocal bringing on stream its West Seno oil structure, Indonesia's first ever deep-water field development. Unocal is to begin production from West Seno in May, with plateau output set at 60,000 b/d.

With oil reserves depleting, Indonesia still does not give foreign investors E&P terms as attractive as the ones being offered by fellow ASEAN countries. It needs at least $3.5 bn in annual investment to find and prove 4 bn barrels and keep oil production above 1m b/d until 2020.

Indonesia has 60 sedimentary basins. Of these 36 are in the west of the country and have been explored, with 14 producing oil and gas at present. Proven oil reserves are estimated at 4.5 bn barrels, down from 5 bn barrels in 2001. Sumatra alone accounts for 70% of the reserves and 60% of oil output (see geological profile & exploration in Gas Market Trends).

Among OPEC's members, Indonesia should have been the least dependent on oil and gas revenues which in the first half of 1997 accounted for less than 20% of its total export receipts. But the Asian economic crisis from mid-1997 to 1999 and widespread unrest have raised the share of oil and gas in total income to more than 40%. Oil and gas used to account for 80% of Indonesia's total export revenues in 1982 (see Downstream Trends).

Many oilfields would stop production in the coming years. Caltex, by far the biggest oil producer in Indonesia, expects its output to fall to about 550,000 b/d this year, down from 600,000 b/d in 2002, 660,000 b/d in 2001 and 785,000 b/d in 1997. Foreign companies account for 90.3% of Indonesia's oil output, with state-owned NOC Pertamina producing the rest (see profiles of the fields & operators in Part 2). The country is losing its importance as an oil source for Asia. But exports of natural gas will be rising steadily in the next two years, with Indonesia being the world's largest supplier of LNG (see Part 3).

The future of Indonesia, the world's largest archipelago and fourth most populated nation, will depend on its current decision makers. Chronic civil unrest across Indonesia is severely straining the armed forces, still the strongest segment of society, and corruption remains despite the downfall of Suharto during bloody riots in May 1998. (see who's who in Part 4 & the political perspective overleaf).

Indonesia's Mines and Energy Minister Purnomo Yusgiantoro said recently that the audited total assets of Pertamina, due to become a limited liability company in April, were valued at 180 trillion rupiah ($20.3 bn). The government will hand over some of Pertamina's assets, which include oil and gas fields and stakes in LNG ventures, to the holding company. The government is in the process of ending Pertamina's monopoly status over much of Indonesia's energy sector, with its privatisation scheduled for 2006. How the assets will be split up among the limited liability company, the government and others is still being decided. The company will have several subsidiaries, both upstream and downstream. In September 2002, the company said it had 564m barrels of oil reserves and 6.8 TCF of gas reserves. Pertamina now is producing about 123,190 b/d of crude oil.