Oil production in Indonesia is targeted to be lifted to 1 million barrels per day (bpd) by October or November 2014 according to SKK Migas, the government unit that manages upstream activities in Indonesia's oil and gas sector. Crude oil production in the first quarter of 2013 was 830,900 bpd, eight percent lower than the target in the country's state budget. Indonesia's oil output has fallen steadily in the last decade due to a lack of exploration and other investments in the sector that was once the engine of Indonesia's economic growth.

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Crude oil is a fossil fuel that is derived from the remains of plants and organisms that lived on Earth millions of years ago (coal and natural gas also formed under similar conditions). Crude oil is found in huge underground reservoirs – either below land or the ocean floor – where ancient seas once existed.

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Few should be unaware that the world (particularly Western powers) are pushing for renewable energy to replace fossil fuels. It is difficult to find a newspaper or TV station that does not report on this issue on a daily basis.

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Just like essentially all other currencies around the globe, the Indonesian rupiah has been under pressure from tightening monetary policy in the United States (US). This has serious consequences for the energy market since Indonesia is a net oil importer.

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The Indonesian rupiah rate weakened against the US dollar in March 2019. Bank Indonesia’s benchmark JISDOR rate finished the third month of the year at a position of IDR 14,244 per US dollar, down 1.29 percent compared to the level of IDR 14,062 per US dollar that was set at the last trading day of February 2019. Nevertheless, compared to the start of the year, the rupiah has remained in positive territory, having appreciated 1.64 percent against the US greenback in the first quarter of 2019.

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An interesting interview with Lana Soelistianingsih was published in Indonesian tabloid Kontan, a magazine that focuses on the economy and financial markets of Indonesia. Soelistianingsih is Head of Economy at Samuel Aset Manajemen as well as a teacher at the Economics Department of the University of Indonesia. The topic of the interview is crude oil.

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Fuel demand in Indonesia already reached 1.6 million barrels per day (bpd). However, oil refining capacity only stands around 1.1 million bpd, implying that 43 percent of fuel consumption in Indonesia needs to be imported from abroad. Oil refining capacity today is roughly the same as it was 15 years ago, meaning that there has been limited progress in development of Indonesia's downstream oil industry. Without adding refining capacity, Indonesia is on track to become the world's largest fuel importer within the next decade.

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Adaro Energy, one of Indonesia's leading coal mining companies, is still plagued by the globe's weak coal prices. However, the company's estimated lower cash and operational costs give a positive boost to the miner's corporate earnings this year. According to Danareksa Sekuritas' estimates the cost of mining for Adaro Energy (outside royalty payments) will range between USD $26 - $28 per ton in 2016, slightly down from USD $28 per ton last year. Meanwhile, the miner's stripping ratio is expected to decline to 4.7x in 2016 (from 5.2x last year).

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Indonesia’s crude oil production is expected to increase starting from mid-March 2015 as new oil fields will start to come online this month, including the Bukit Tua oil field (part of the Ketapang block in East Java and which is operated by Petronas Carigali). Over the past two decades Indonesia oil output has declined drastically amid maturing oil fields and the lack of exploration as well as other investments in Indonesia’s oil & gas sector. In 2014, Indonesia produced an average of 794,000 barrels of oil per day (bpd).

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Both the Indonesian rupiah exchange rate and stocks continued to fall on Tuesday (06/01) as global conditions remained unconducive. Indices on Wall Street had declined sharply yesterday as the global oil prices fell below USD $50 per barrel fueling concerns about a weaker global economy. Similarly, most Asian stock indices declined as Japan's yen appreciated and energy stocks were sold by investors. Indonesia’s benchmark Jakarta Composite Index fell 0.98 percent to 5,169.06 points.

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It remains difficult for Indonesia to achieve oil production targets that are set by the Indonesian government. In fact, it is unlikely that Indonesia will meet this year’s revised oil lifting target of 818,000 barrels of oil per day (bpd) as set in the Revised 2014 State Budget. In the first half of 2014, Indonesia recorded an oil production rate of 797,000 bpd only. For almost two decades, Indonesia’s oil sector has been in a state of decline, evidenced by falling production rates, due to a lack of investments and aging oil fields.

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