Oil price increase buys time for energy development

A jolt shook Jakarta in January when the Suharto government announced a 60 percent jump in domestic fuel prices -- just four months before an election.

The election went smoothly for the government's party, but an unexpected result was a sudden drop-off in the rate of increase in oil consumption.

''We have been a little surprised,'' says the director general of oil and gas in the Department of Energy, Mr. Wijarso. ''From an 11 percent rise last year, the (growth in) consumption has gone down to 1 or 2 percent at most.''

The surprise could not have come at a better time. If domestic oil use stays low, it will put off by several years a near-doomsday projection that Indonesia will have no more oil to export by the early 1990s.

As a member of the Organization of Petroleum Exporting Countries, with about 5 percent of the cartel's oil production, Indonesia has had the luxury of being flush with foreign exchange for a decade.

And in sheer size, the country bathes in natural energy sources, such as natural gas, coal, and volcanic steam. Such energy endowments, however, could look scarce if the fifth-most-populated nation -- 150 million people -- rapidly raised its energy diet.

The newfound riches of oil wealth have helped graduate Indonesia from a low- to a middle-income country by World Bank standards. Yet it remains low in per capita energy use, according to Harvard University's Malcolm Gillis, a specialist on Indonesian energy. Even if energy consumption rose at, say, 6 percent a year, as some experts think possible, energy production would have to double by the year 2000. That would be possible, Dr. Gillis says, if oil production could reach 1.8 million barrels per day (b.p.d.) by 1984, and other energy sources grew at 3.6 percent a year.

But OPEC has pegged Indonesia's production at 1.3 million b.p.d. to help stabilize prices. That has left the government with three choices: speed up development of non-oil energy sources, race to find more oil for the future, and consider dampening domestic demand even further with higher oil prices at home.

By 1990, the World Bank estimates, earnings from oil exports will drop to 44 percent of total exports, down from 66 percent last year. The most obvious substitute for lost oil exports is the sale of liquefied natural gas. LNG's share of exports is expected to double by 1990 as six new liquefying plants come on stream, selling mainly to Japan. Already the largest LNG exporter in the world, with $2.3 billion in sales in fiscal year 1980-81, Indonesia may be sitting on a few of the planet's largest gas pools.

The Natuna gas field, near Sumatra, contains as much as 90 trillion cubic feet, perhaps the largest in the world, but much of it is carbon dioxide. The Arun field in North Sumatra holds an estimated 16 trillion of recoverable reserves. Other finds are being discovered, such as a recent one of 600 billion cubic feet in South Sulawesi. Most of these fields are far from the most populated island, Java, and so are destined for exports. But a fertilizer and petrochemical complex is being built on Sumatra to use the gas domestically.

With large, and not yet fully explored, reserves of coal, Indonesia plans to begin substituting this fuel for oil. Coal-fired power plants are being built in South Sumatra, and negotiations with American coal companies are under way to export 25 to 40 million metric tons a year from East Kalimantan, with a reserve clause that the coal might be used in Indonesia.

With 128 volcanoes, Indonesia wallows in geothermal potential, but it is as yet untapped. The prospect for 2,000 megawatts of electricity on Java alone is possible by the end of the century, Dr. Gillis says. There is a potential for 30,000 megawatts from hydroelectric power, but progress has been slow. And hopes for a nuclear power plant have been whittled down to a 30 megawatt research facility by 1986.

''If everything goes well, about 1990 we will lessen our dependency on oil from 80 to 65 percent of total energy production,'' says Mr. Wijarso.

An ambitious target has been set to raise oil production to 1.9 or 2 million b.p.d. by 1990. This would keep exports near their present 1 million-barrel level, while domestic consumption is expected to rise from 500,000 b.p.d. to about 900,000.

With many small deposits, Indonesia must keep up an active exploration program just to stay in place. As the largest oil producer east of the Persian Gulf, it has developed a good relationship with foreign, mainly American, companies. ''We are condemned to live with the 'majors,' '' says Wijarso. ''Whatever nationalistic feelings we have, we cannot live without the oil companies.'' The state's own Pertamina oil company, which ran up a debt of $10.5 million in 1975 and had to be bailed out, produced only about 5 percent of the nation's petroleum. Slowly, however, the government has forced the companies to hire more Indonesians and use more Indonesian companies for drilling services.

In 1976, Indonesia toughened the contracts with foreign companies by requiring 85 percent of production, rather than 65 percent, for its own use, which means the government also pays for 85 percent of costs.

The new rules set back exploration for two years, until the world price increase in 1979. Two to three hundred wells a year have been drilled, with an average $1 billion-a-year investment program. Lately, however, Indonesia has begun to worry about competition in oil exploration and production from other Asian nations, especially China.

''When China finally opens up, Indonesia should look again at its contract offers,'' an American oil official says. ''China may pull away a lot of rigs.'' Indonesian officials claim they offer greater political stability than China.

Meanwhile, several companies in Indonesia are launching a ''secondary recovery'' program to squeeze twice as much oil out of present wells, such as a large one at Minas on Sumatra, run by Caltex Pacific Indonesia.

The fuel price rise in January only raised prices to 56 percent of international levels. Although this dropped the cost of oil subsidies from 6 percent of gross domestic product to 3.6 percent, officials know that future increases in prices are necessary to keep down demand.