Two in...one out.
Based on comments made in Jakarta earlier this week, it seems obvious that Indonesia's days as a member of OPEC are probably coming to an end. The only question is what took so long.
The loss of Indonesia would still leave a net gain for OPEC in the last year. Angola joined the organization, and Ecuador rejoined after a long absence.
With all the furor over current prices, it is important to remember what OPEC was created to do: it was formed in response to what seemed to be an ever-persistent glut of crude on the market. Its goal was to restrain production so as to make that glut manageable, and to give its members more economic clout. There were other reasons also, but producers before OPEC perpetually had to deal with the fact that there was usually more oil on the market than the world needed.
But when you've become a net importer, as Indonesia has been for several years, efforts to manage excess capacity are ones you should be opposing, not supporting. On top of that, OPEC has diminishing excess capacity to manage.
Although Indonesia has been producing far less than its OPEC quota for several years, by remaining in OPEC it does raise the possibility that should global demand plummet over some economic catastrophe -- think of a major terrorist attack, or a viral pandemic -- that the country might be called upon to cut its already dwindling output, something it would be loath to do. So why continue to pay several million dollars in dues to an organization whose interests are now diametrically opposed to yours?
Not that the country isn't trying. Luluk Sumiarso, director of oil and natural gas for the country's Ministry of Energy and Mineral Resources, said this week at the Offshore Technology Conference in Houston that his nation's liquids output should average 977,000 b/d in 2008, up from 960,000 b/d in 2007. He also said the country can achieve 1 million b/d of liquids production in the next few years.
High prices are now a problem in Indonesia, not a blessing. The country makes it worse by joining with so many other nations in subsidizing the price of its domestic products. Gasoline, kerosene and diesel all are heavily subsidized. This week, Platts' Irene Tang reported that state oil company Pertamina will skip imports of high octane gasoline blendstocks in June because of high international prices. So it's feeling the pain.
Viral pandemic? I think we should try car pooling first.
Agreed, but more car pooling is not likely to cause a precipitous drop in demand that would require OPEC to take drastic steps to reduce its output. A viral pandemic would. This is the sort of thing economists do all the time: what would happen if a certain event occured? For energy economists, more car pooling has relatively minor impact on demand. A viral pandemic would have huge impact. It's sort of like the Asian economic crisis of 10 years ago. It's why we had $10 oil. You could argue that a viral pandemic would have a bigger impact on demand than the Asian economic collapse.