INDONESIA - Part 1 - The Prospects.

Indonesia can only produce 950,000 b/d of crude oil and less than 130,000 b/d of condensates and NGLs. Condensate/NGL production has declined from 200,000 b/d in early 2001. Hoping that the natural decline of its many oilfields can be offset by production from new fields, Indonesia now consumes 1.2 million b/d of oil.

Oil and condensate/NGL production has been declining steadily in recent years, to average less than 1.4m b/d in 2003, from 1.5m b/d in early 2001 and 1.6m b/d in 1997. But Indonesia's OPEC quota, excluding condensate/NGL, is 1.399m b/d, far above its capacity.

Indonesia in 2004 produced an average of 1.098m b/d of crude oil and condensate in 2004. The country's average production of crude oil last year was 968,200 b/d and condensate was 129,800 b/d last year. In its 2005 budget, the Indonesia government has estimated crude oil and condensate production to rise to an average of 1.13m b/d, with crude oil to average 950,000 b/d. Some industry sources have expressed doubts that Indonesia would meet this target because of old fields and a lack of fresh investment in the sector.

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 of additional reserves 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 at end-2004 were estimated at 4.2 bn barrels, down from 4.4 bn barrels at end-2003, 5.2 bn barrels at end-1993 and 10.1 bn barrels at end-1983. Sumatra alone accounts for 65-70% of the proven reserves and 55-60% of oil output (see geological profile & exploration in Gas Market Trends of this week).

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, the biggest oil producer in Indonesia, expects its output to fall to about 530,000 b/d this year, down from 550,000 b/d in 2003, 600,000 b/d in 2002, 660,000 b/d in 2001 and 785,000 b/d in 1997. Foreign and private companies account for 86% 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, 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. The election of an effective ex-military figure to the presidency in 2004 has led to a reduction of civil unrest across Indonesia which until then had severely strained the armed forces, still the strongest segment of society (see who's who in Part 4 & the political prospects on following pages & News Service of this week's Diplomat).