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Minerals:
Crude petroleum and natural gas
predominant. About 70 percent (about
500 million barrels valued at US$6
billion in 1989) of petroleum
exported. World's largest exporter of
liquefied natural gas (20.6 million
tons valued at US$3.7 billion in
1990). Also significant reserves of
coal, tin, nickel, copper, gold, and
bauxite.
Petroleum:Indonesia's oil
production was formally governed by a
quota allocation from OPEC. At the
March 1991 OPEC ministerial meeting,
Indonesia's quota was set at 1.445
million barrels per day, below the
country's estimated production
capacity of 1.7 million barrels per
day. Indonesia's quota represented
about 6 percent of total OPEC
production. About 70 percent of
Indonesia's annual oil production was
exported on average during the late
1980s, but domestic consumption was
increasing steadily and reached half
of annual oil production by 1990.
Indonesia's oil industry is one of the
oldest in the world. Oil in commercial
quantities was discovered in northern
Sumatra in 1883, leading to the
establishment of the Koninklijke
Nederlandsche Maatschappij tot
Exploitatie van Petroleum-bronnen in
NederlandschIndië (Royal Dutch
Company for Exploration of Petroleum
sources in the Netherlands Indies) in
1890, which was merged in 1907 with
the Shell Transport and Trading
Company, a British concern that had
been drilling in Kalimantan since
1891, to form Royal Dutch Shell. Royal
Dutch Shell dominated colonial oil
exploration for more than thirty
years. By 1911 Royal Dutch Shell
operated concessions in Sumatra, Java,
and Kalimantan (then called Borneo),
and Indonesian oil was almost 4
percent of total world production.
Indonesia's most important oil fields,
the Duri and Minas fields in the
central Sumatran basin, were
discovered just prior to World War II
by Caltex, a joint venture between the
American companies Chevron and Texaco,
although production did not begin
until the 1950s. By 1963 the Duri and
Minas oil fields, located in Riau
Province near the town of Dumai,
accounted for 50 percent of oil
production.
The postindependence government
increased its control over the oil
sector during the 1950s and 1960s by
increasing operations of several
government-owned oil companies and by
stiffening the terms of contracts with
foreign oil firms. In 1968 the
government companies--Indonesian Oil
Mining company (Pertamin), National
Oil Mining Company (Permina), and the
National Oil and Gas Company (Permigan)--were
consolidated into a single operation,
the National Oil and Natural Gas
Mining Company (Pertamina). At this
time, a new form of contract--the
production-sharing contract--was
introduced. A production-sharing
contract split total oil production
between the contractor and the
government, represented by Pertamina,
and allowed the government to assume
ownership of structures and equipment
used for exploration and production
within Indonesia. Indonesia's contract
terms were considered among the
toughest in the world, with the
government in most cases receiving 85
percent of oil produced once the
foreign company recoveredcosts.
Annual
oil production in Indonesia peaked in 1977 at over
600 million barrels. The official price of Minas
crude was then about US$14 per barrel, a
substantial rise from the 1973 price of about US$4
per barrel as a result of OPEC's successful market
manipulations. Prices continued to soar in 1981,
reaching US$35 per barrel, and oil exports peaked
at US$15 billion, or about 70 percent of total
export earnings. In 1982, however, production
declined, reaching a low of 460 million barrels
and the oil market began to weaken that same year,
when Indonesia's Minas crude was priced at US$29.
The market collapsed in 1986, bringing the Minas
price to below US$10 per barrel. Recovery of oil
prices began slowly, and by 1989 Minas was priced
at about US$18 per barrel. Total production in
1989 was almost 500 million barrels, and oil
exports were valued at US$6 billion. Indonesia had
proven oil reserves in 1990 equal to 5.14 billion
barrels, with probable reserves of an additional
5.79 billion barrels. Throughout the archipelago
there were sixty known basins with oil potential;
only thirty-six basins had been explored and only
fourteen were producing. The majority of
unexplored areas were more than 200 meters beneath
the surface of the sea. Indonesia's oil reserves
were usually found in medium- and small-sized
fields, so that continued exploration was vital to
maintain production and known reserves.
In 1989 and 1990, the government loosened some
provisions for new contracts to stimulate
exploration, particularly in frontier areas.
Improved oil market conditions in the late 1980s
also contributed to a surge in production-sharing
contracts. Fifty-seven of the 100 contracts active
in 1992 were signed from 1987 to 1991. The newer
contracts committed US$2.8 billion in exploration
during the 1990s. Production from existing oil
fields was still dominated by Caltex's operations
in Sumatra, which accounted for 47 percent of
Indonesian oil production in 1990. Twenty foreign
oil companies, primarily United States-based, were
active producers in 1990.
Pertamina operated eight petroleum refineries with
a total capacity to produce 400,000 barrels per
day of a variety of distilled products for
domestic use and export. The Indonesian government
subsidized the domestic prices of distillates, and
in spite of several price increases during the
1980s, prices in Indonesia were well below
international market prices by 1990. For example,
kerosene, used primarily for cooking, was priced
at Rp190 per liter following a 15 percent price
hike in May 1990; the price of kerosene in
Singapore was then equivalent to Rp643 per liter
and in the Philippines, Rp512 per liter. The total
cost of fuel subsidies amounted to Rp2.6 trillion
(US$1.3 billion) in FY 1990. Pertamina forecast an
increase in domestic demand for distilled products
of 7 percent per year, and hoped to meet this
demand and, simultaneously, to expand exports.
Four new refineries with a total capacity of
500,000 barrels per day intended entirely for
export were in various stages of planning in 1990.
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