Why Indonesia wants back in OPEC
Few expected huge news out of Friday's OPEC meeting, Charles Kennedy writes, but the fact that Indonesia wants back in the powerful oil cartel came as a surprise.
Who ever said there wouldn’t be any news coming out of the OPEC meeting in Vienna this week?
In a surprise announcement, Indonesia has decided to officially pursue full membership in the oil cartel. Indonesia is no stranger to OPEC. It used to be a member, but left six years ago. Now it hopes to rejoin by the time the group meets again in November 2015. (Related: This Dutch Innovation May Solve The Energy Storage Problem)
The move is a curious one considering Indonesia is not a net oil exporter. It consumes around 1.5 million barrels per day and only produces 800,000 barrels per day. Indonesia has insisted on becoming a full member despite the fact that full membership typically requires being a net exporter. It originally suspended its membership in the cartel in 2008 once its imports started to quickly surpass its level of exports.
There are currently only 12 members of OPEC. Indonesia once was the only Asian country in OPEC and would be again if it rejoins. (Related: Forget The Noise: Oil Prices Won’t Crash Again)
Meanwhile, Indonesia is seeking supply agreements with OPEC members in order to import oil. Indonesia has a fast growing economy and is continuously searching for more sources of supply. “We will discuss purchasing crude from them. We have a plan to build refineries, so we need crude supplies,” Wiratmaja Puja, a top official at Indonesia's Energy Ministry, said to Reuters in an interview. That would be crucial for a country that is desperate to increase its domestic production of refined products.
For years Indonesia has heavily subsidized the consumption of fuel, and removing the subsidies has been tricky as it would raise the ire of consumers. But the collapse in oil prices allowed the government to pare back some of the largesse.
Still, demand for fuel remains strong and Indonesia’s refining sector has not been able to keep up. That has the government laying out plans to build four major refineries over the next decade, and it is holding bilateral meetings with OPEC member nations this week in order to attract investment and secure supply contracts. (Related: Cold Shoulder For Russia Could Hint At OPEC Decision June 5th)
The Secretary-General and OPEC governors will consider Indonesia’s application for membership.
By Charles Kennedy of Oilprice.com
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