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Indonesia Temporarily Freezes OPEC Membership



    Indonesia decided to temporarily suspend membership in the Organization of the Petroleum Exporting Countries (OPEC). The decision was taken at OPEC's 171st Session in Vienna, Austria, Wednesday (30/11). 

    Energy and Mineral Resources (ESDM) Minister Ignasius Jonan said the freezing step was taken after the court's decision to cut crude oil production by 1.2 million barrels per day, excluding condensate. The session also asked Indonesia to cut about 5 percent of its production or around 37 thousand barrels per day.

    Even though the need for state revenue is still large and in the 2017 Draft State Budget it is agreed that oil production in 2017 will decrease by 5 thousand barrels compared to 2016, "said Jonan.

    Thus, the cut that Indonesia can accept is 5 thousand barrels per day. Jonan added that as a net oil importer country, this production capacity cut is not profitable for Indonesia, because the oil price will theoretically rise. With this membership suspension, Indonesia has twice frozen its membership in OPEC. The first freeze was in 2008, effective 2009.

    Indonesia decided to return to being active as a member of OPEC in early 2016. This temporary suspension is the best decision for all OPEC members. Because thus the decision to cut 1.2 million barrels per day can be carried out, and on the other hand Indonesia is not bound by the decisions taken, in line with Indonesia's national interests. Member of Commission VII of the House of Representatives (DPR) Kurtubi, supports the government's move to temporarily suspend membership in OPEC.

    This policy reflects the current condition of Indonesia. The government does not want to reduce lifting. Kurtubi said that Indonesia's crude oil production trend has never been achieved. This is due to the lack of exploration activities as well as mature domestic oil wells. 

    He said that without a decision to cut production at the OPEC session, Indonesia's oil production actually decreased from year to year. Without being told to reduce the production target, it is difficult to achieve because our production trend is down.

    He said that the temporary suspension of status did not mean that Indonesia would leave OPEC's membership. That way Indonesia can still cooperate with OPEC member countries.

    The Executive Director of the ReforMiner Institute, Komaidi Notonegoro, added that cutting or increasing oil production is one of the policies commonly carried out by OPEC. Indonesia must be careful in responding to this policy. He said the decision to freeze membership was a natural gesture.

    Komaidi said that his party has not seen the benefits of Indonesia's membership in OPEC. He said the benefits of being a member were limited to price information. According to him, the temporary suspension of status is not detrimental to Indonesia. This is because Indonesia can still cooperate with oil-producing countries outside of OPEC's membership, such as Russia and the United States. A country like this must be the concern of Indonesia to obtain oil and gas.

    Energy observer from Trisakti University Pri Agung Rakhmanto said the suspension of membership status allowed Indonesia to concentrate more on fixing oil and gas management in Indonesia. The government will often face OPEC decisions that differ from Indonesia's interests. He explained that OPEC's decision to cut oil production currently differs from Indonesia's interests, which in fact have to increase production to sustain state revenues.

    Pri Agung said that the membership suspension will have little effect on the downstream oil sector. This means that it can reduce direct access and cooperation with OPEC members in the procurement or import of crude oil and fuel oil (BBM) and the construction of refineries. 

    The domestic oil and gas industry, especially the upstream sector, will have no effect. Meanwhile, world crude oil prices rose about 8 percent in trading Wednesday US time after the major world oil producers who are members of OPEC for the first time since 2008 agreed to cut their crude production in order to raise oil prices which have continued to fall recently.

    This production cut, as quoted by Antara, would put OPEC's oil production below the current level of 33.64 million barrels per day. Non-OPEC country, Russia also agreed to cut oil production to 300,000 barrels per day. OPEC will meet with non-OPEC oil producers on December 9. 

    The West Texas Intermediate benchmark oil price for January delivery rose the US $ 3.93 to the US $ 49.16 per barrel. Meanwhile, the price of Brent oil for shipment in January rose the US $ 3.73 to the US $ 50.11 per barrel, or an increase of 8 percent. February shipments rose 8.8 percent to the US $ 51.48 per barrel. Kuwait, Venezuela, and Algeria agreed to monitor compliance with the OPEC agreement.

Investor Daily, Page-9, Friday, Dec 2, 2016
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