Part 2 of 2: Fundamentals the cause of oil price turbulence<\/p>\n
Kurtubi, Jakarta<\/p>\n
A similar phenomenon is also found in India, which has a
\npopulation of nearly a billion people. A rise in oil consumption
\nis also found in the United States, the world's biggest oil-
\nconsuming country, accounting for 26 percent of the world's total
\noil consumption, which, in the fourth quarter of 2004 is expected
\nto be between 83.5 and 84 million barrels per day.<\/p>\n
In the annual conference of International Association of
\nEnergy Economists (IAEE) held in July 2004 in Washington D.C.,
\nthe executive director of the International Energy Agency (IEA)
\nalso acknowledged this phenomenon. Several parties also proposed
\nduring the conference that the funds that OECD collected in the
\nform of oil\/gasoline tax should be partly returned to oil-
\nproducing countries and invested there in the upstream sector.
\nThe purpose of this arrangement is to ensure the continuity in
\nthe fulfillment of the world's oil demand will be better
\nguaranteed, something that is also the concern of OECD member
\nstates.<\/p>\n
It is worth noting that at the price level of $35\/barrel, the
\noil taxes collected by OECD countries would total about $1
\ntrillion, far exceeding the gross oil earnings recorded by all
\nOPEC countries combined, which, at the same price level, amounts
\nto only about $300 billion. However, this proposal, certainly,
\nfailed to get enough support from the conference participants,
\nwho were mostly representatives of OECD countries.<\/p>\n
Indeed, however, this proposal is not a castle in the sand.
\nNow that the price of oil has reached a relatively high level,
\nmany parties in Europe have already suggested the reduction of
\nthe gasoline tax rates, which in several countries, like Germany,
\nGreat Britain, France and Holland, are three times as much as the
\nmarket price of oil.<\/p>\n
If OECD countries agree to lower their oil tax rates, this
\nreduction will be of great help to consumers in OECD countries
\neven if the price of oil remains about $40\/barrel or even above
\n$50, because then prices at gas stations, now the equivalent of
\naround Rp 15,000\/liter in most of Western Europe, can be lowered.
\nIt must be noted that at this price level, only Rp 5,000\/liter
\nwill go to the oil company while the remaining Rp 10,000\/liter
\nwill go to various governments as tax revenue.<\/p>\n
On the other hand, an increase in the earnings of oil-
\nproducing countries as a result of the \"high\" price, should be
\nreturned for investment in the upstream sector to ensure the
\nsustainability of increases in reserves and production levels.<\/p>\n
It is, however, understandably difficult for OECD countries to
\n\"surrender\" to the pressure of their domestic fuel consumers that
\nthe fuel tax must be reduced because this reduction will
\nimmediately lead to a drop in the state budget of each OECD
\ncountry. Nevertheless, this issue can be used as material for a
\nconstructive dialog between producing countries and international
\noil consumers so that they will not view the problems related to
\nthe international oil prices and oil fuel taxes from their
\nrespective stances.<\/p>\n
For Indonesia, where in the past five years, oil production
\nhas continued to drop from about 1.5 million barrels per day in
\n1999 to 1 million barrels per day in 2004, there is no other
\noption but to make every effort to immediately increase its oil
\nexploration and production levels so that it can again be solely
\nan oil exporter.<\/p>\n
Lower production and a lack of fresh investment in the oil and
\ngas sector are not only attributable to \"natural\" factors (aging
\noil wells and depleted reserves), but also to inappropriate
\nmanagement and legislation -- most notably, Law No. 22\/2001 on
\noil and gas, which imposes a variety of discouraging taxes on
\ninvestors during the exploration stage.<\/p>\n
For over 3 decades, in fact, investors were only taxed when
\nthey actually discovered and produced oil or gas. If our
\nproduction can be raised to over 1.3 million barrels per day, our
\nmembership in OPEC will not be questioned by oil executives in
\nWestern Europe, a concern that many of them shared with me during
\nvarious meetings in Germany and France. It is to be noted that
\nthe demand for crude oil to fulfill domestic demand in 2004
\nstands at around 1.3 million barrels per day, while production
\nlevels are, as mentioned above, 1 million barrels per day.<\/p>\n
If Indonesia fails to raise its production level, not only its
\nmembership in OPEC will be in doubt but, more dangerously, it
\nwill increase its dependence on imported oil. This poses a great
\ndanger to the country's economic resilience and security.<\/p>\n
We hope that the new government that is elected next month,
\nwill be able to improve this sad situation of our national oil
\nand gas industry. A drop in production when the oil price soars
\nand the oil subsidy continues to increase has led to the
\ngovernment's inability to finance the establishment of
\neducational, health and transportation infrastructure or open up
\nemployment opportunities.<\/p>\n
The writer is the Director of the Center for Petroleum and
\nEnergy Economics Studies (CPEES), and is a lecturer in the
\npostgraduate program at the University of Indonesia's School of
\nEconomics.<\/p>",
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