The Relation of Oil and Gas with the Economy of Indonesia

Introduction

                Indonesia started their exploration for oil since 1871 and began their first commercial production in 1885 with the Sumatra and Borneo islands and some offshore oil and gas fields as their main oil source. Since Indonesia is proven to hold 4 million barrels of oil, they rank 21st among world oil producers and contributes approximately 1.2% of world’s oil production. Indonesia joins the OPEC (Organization of Petroleum Exporting Countries) as the only Asian member in 1962 for its’ large oil production, which is second to China in the Asia Pacific region. Throughout the years Indonesia had reached their peak oil production up to 1.6 million barrels per day in 1977 but since 1995 the production decrease down to less than one million barrels per day. At the year 2004 Indonesia experiences a high increase in oil consumption alongside with continuously declining oil production which results to government decision that made Indonesia from being a net oil exporter to becoming a net oil importer late that year, and that situation leads to their withdrawal from OPEC. The latest data from Kompas stated during January to April 2011 Indonesia produce 977.187 barrels of oil every day.

Not only the massive amount of oil resources, Indonesia also have vast amount of natural gas resources mostly located at the north part of Sumatra and Eastern Borneo. They ranked 8^th in world gas production with 108 trillion cubic feet reserve in the year 2010. It puts Indonesia as 11^th largest gas reserve owner in the world and largest in Asia Pacific region.  In the year 2008 the annual production reached up to 8.3 billion cubic feet per day and keep on increasing. In 2010 Indonesia supplied 2.6% of the world’s natural gas products. Indonesia used to be the world’s largest exporter of LNG in 2005, but dropped to be 2^nd in 2010 caused by the government’s policy to serve the domestic needs.

From those production, the data from the Indonesian ministry of monetary stated that the state income from oil and gas in 2012, exclude taxes, reaches up to 198.3 trillion rupiah while 19.8 trillion rupiah is used from subvention.

Strengths, Weaknesses and Their Effect to Indonesia Economy

                From the facts I have stated above, we can see that Indonesia has abundant natural resources, especially oil and gas. We can also see that those resources (more specifically oil and gas) contribute so much to Indonesia, both as export factors and for domestic consumption. Despite all of the advantages that Indonesia gains from being one of the largest oil producers in the world, in fact we still cannot find the efficient way to process the resources that we have. This results to Indonesia being an importer of processed oil which the crude oil comes from the export of our country’s own oil production.

Other than producing and exporting oil, Indonesia gains much of its’ state income from producing and exporting natural gas. Most of the exported natural gas is in the form of LNG and LPG. Exporting LPG and LNG helps the country to afford the cost of importing processed oil from other countries. Other than being exported, Indonesia’s productions of natural gas also fulfill the nation’s domestic needs. But lately both global and domestic consumption of gas decrease and it affects Indonesia’s income, which eventually affects the nation’s economy.

Both from the export of oil and gas, and the domestic consumption Indonesia gains great profit that can actually improve Indonesia economic condition and can be used for the nation’s development, but instead of going to all that, most of the profit are used for subvention and to import processed oil. So in the end the state income isn’t left that much to be able to improve the nation’s economy nor to be used for development. 

Society and Government Role

                As I stated above, the high state income should be able to improve the nation’s economy and be used for development, but, in fact, it actually goes to subvention and import. To overcome this issue, the people and the government of Indonesia should act.

Both the people and the government of Indonesia have the capability to actually do something and help improve the nation’s economy. For example the people can convert from using kerosene to using LPG for everyday use, such as for cooking; the people can also reduce using the subsidized petrol, mostly known as premium in Pertamina owned gas stations; or even better, the people can reduce the use of oil based fuel by using public transportation more or use alternative ways of transportation such as riding bicycles or walking. This way, hopefully as the use of subsidized petrol decrease, government’s expense for subvention will also decrease; and as the domestic demand for petroleum decrease, the amount of petroleum Indonesia should import also decrease which in the end leads to less expense the nation has to give out.

Not only the people who have to make some changes, the government of Indonesia also have to make some changes too if they want to improve the economy of the country.  If the people are expected to take public transportation more, then the government should improve the quality of public transportation itself. As we all can see, most of public transportation in Indonesia are not feasible, so the people end up not wanting to take them unless they have no other alternative. The government should also facilitate the needs of the people such as providing sidewalks, etc. Other than providing decent facilities for the people, the government should also make regulations regarding the standard for oil and gas, partly to gain the people’s trust and to keep the people safe; regulations for the use and standardized price for oil and gas (especially oil because Indonesia’s subsidized petrol price is far lower than the price of petrol in most countries) so that Indonesia can gain more profit.

Another thing that both the government and the people can cooperate to do is improving the education so that in the future Indonesian people will have the knowledge and skills needed to manage, process, and handle their resources. Hopefully by this attempt, in the future Indonesia will not have to depend to other countries to process the raw materials that they have (in this case crude oil) so that they don’t have to import the processed goods and gain more profit for themselves, moreover to produce and process the goods (crude oil and petroleum) and use them to fulfill domestic needs and to be exported to other countries which eventually adds the state income.

Conclusion

                Indonesia is a country which has a very good potency in terms of oil and gas production. Those resources if used properly could actually improve the nation’s economy and wellbeing, but currently they still depend on other countries to process them. This condition results to inefficiency in terms of handling the resources that is supposed to be a great source income but instead become a great expense. Hopefully in the future Indonesia will have the needed knowledge and skills to manage their resources (oil and gas) so that the nation can gain much from them.

Sources List

                https://www.google.com

                http://www.pwc.com

                http://en.wikipedia.org

                http://www.ipa.or.id

http://www.bpmigas.go.id

Writer :
Name : Vienna Fawzia H
Npm : 120110120202
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