indonesia

f i g u r e 1 Indonesia’s oil production and consumption, 1965–2014
1,800
1,600
1,400
Thousand barrels per day
1,200
1,000
800
600
400
Oil production
Oil consumption
1989
1991
2013
2014
200
0
1971
1973
1975
1977
1979
1981
1983
1985
1987
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
1965
1967
1969
Year
s o u r c e : BP plc., “BP Statistical Review of World Energy 2015,” June 2015.
major international oil companies. Indonesia pioneered the use of production-sharing contracts,
which defined the oil supply as the property of the people of Indonesia and paid oil companies
a contracted share of the production as their investment return. Spiking oil prices in 1973–74
and again in 1979–80 coincided with this rise in production and led to enormous increases in oil
export earnings that helped fuel Indonesia’s rapid economic growth during the 1970s and early
1980s. In the mid-1970s, oil exports made up 60% of export earnings and 70% of state budget
revenues. After peaking in 1977 at nearly 1.2 million bpd, exports remained above 1 million bpd
into the early 1990s despite gradually rising domestic oil demand. 3 To its credit, and unlike many
other OPEC oil exporters at the time, Indonesia under the Suharto government used the proceeds
from oil exports to help diversify its economy and fund the country’s revolution in rice production
and historic shift toward self-sufficiency.
Yet this period was not without challenges. Despite many successes, the age-old problem of
corruption was pervasive at Pertamina. In 1975 a debt crisis in which the company had run up
unmonitored debts of nearly $10 billion nearly bankrupted the Indonesian government. Although
oil production remained in the 1.4–1.6 million bpd range until the late 1990s, signs of weakness
emerged much earlier. 4 As can be seen in Figure 2, the underlying level of proven oil reserves
3 BP plc, “BP Statistical Review of World Energy 2015.”
26
NBR
4 Ibid.
SPECIAL REPORT u DECEMBER 2015