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ENERGY: Indonesia Leaves OPEC, General Motors Downsizes

Humberto Márquez

CARACAS, Jun 6 2008 (IPS) - Indonesia pulled out of the Organisation of Petroleum Exporting Countries (OPEC) almost at the same time as U.S. automobile giant General Motors decided to build fewer pickup trucks and make an electric car.

“We may be seeing the beginning of the end of the reign of oil and OPEC, because the global energy matrix is changing,” Elie Habalián, a professor of graduate studies in oil economics and former Venezuelan governor at OPEC, told IPS.

Indonesia joined OPEC in 1962, two years after it was created, and was the only member in southeast Asia. Traditionally, its output was over 1.5 million barrels of crude a day, but that fell this decade to under 900,000 barrels per day (bpd), while domestic consumption is over 1.1 million bpd.

It leaves behind its longstanding fellow OPEC members Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela, and two new member countries that joined in 2007, Angola and Ecuador. The group extracts over 30 million bpd, equivalent to 37 percent of world production.

Since Indonesia is no longer a net exporter of oil, in these new circumstances it does not make sense to belong to the organisation, said Indonesian Energy Minister Purnomo Yusgiantoro, adding that his country would continue to prospect for oil and, if any is found, will apply to rejoin OPEC.

Although it has signed five new oil and gas exploration contracts with foreign firms, and is planning to put another 46 areas out to tender, Indonesia illustrates how agreements on new investments may be delayed while older reserves run out.

Around the world, several times this decade, “companies have invested only when it was too late, consumer countries have used up the ‘cushion’ (excess of supply over demand) and the oil market has been invaded by speculators and investment funds,” said Venezuelan consultant Evanán Romero.

Against that backdrop, oil prices are shooting up – on Friday they once again surpassed 130 dollars a barrel – while exploring for new reserves is becoming more and more difficult and costly. World reserves stand at 1.2 trillion barrels, 75 percent of which are under the ground in OPEC countries, according to British oil giant BP.

This month’s issue of National Geographic magazine discusses the potential drying up of oil production, which was one million bpd a century ago and is now 85 million bpd. Every year demand grows by 1.5 percent, while production yield falls by eight percent.

Experts like James Mulva, CEO of U.S. oil company ConocoPhillips, estimate that an “optimistic scenario” for 2030 is that production might be 100 million bpd, but demand would be 116 million bpd.

The search for oil to bridge that gap faces stumbling blocks like Indonesia, the decline of production in Mexico and the North Sea, and stagnation of output in Russia, where production probably peaked last year at just over nine million bpd.

“Even Saudi Arabia was talking six years ago about reaching a potential production of 20 million bpd. Since then its has increased its capacity from 10 to 12 million bpd, so how long will it take to reach 20 million?” asked Habalián.

In contrast, “when the price of a barrel is above 70 dollars, other energy sources become competitive, and there is a large flow of investments towards them,” he said.

Víctor Poleo, another professor of oil economics, told IPS that, in fact, “the large energy corporations are using the income from high oil prices to finance a shift away from oil,” which in his view is aimed at new ways of using coal as fuel.

The world’s four largest oil corporations, Exxon Mobil, Shell, BP and Texaco, rake in profits of between 18 and 42 billion dollars a year.

According to Habalián, “there will be oil for several decades to come, but it will give way to a different energy matrix, especially in transport, and that’s where the changes decided this week at General Motors fit in.”

The giant automotive consortium, famed for the (misquoted) 20th century aphorism “what’s good for General Motors is good for the United States,” decided shortly before its 100th annual shareholders meeting to close down four plants (two in the U.S., one in Canada and one in Mexico), which means the dismissal of 10,000 workers.

The four factories were making pickup trucks, 4x4s or sports utility vehicles (SUVs). GM CEO Rick Wagoner justified the move because “since the first of this year, U.S. economic and market conditions have become significantly more difficult.”

“Record gasoline prices are changing consumer behaviour and changing it rapidly, and we believe the changes are by and large permanent,” Wagoner said.

The company may even sell off its Hummer brand, a gas-guzzling civilian version of the Humvee made by GM for the U.S. army.

GM will make smaller and more fuel-efficient cars, and has promised hybrid gasoline-electric vehicles by 2012.

By late 2010 it plans to launch the Chevrolet Volt, a compact electric car running on batteries rechargeable 7,000 times, giving them a useful life of 10 years, and a range of 64 kilometres, which can be extended to 600 kilometres using its small combustion engine to recharge the batteries. This motor uses gasoline, and may also use ethanol.

“Before these changes in consumer lifestyles in industrialised countries take effect, because of (U.S.) gasoline prices of over four dollars a gallon, OPEC had already lost leverage. Now it is stock market speculation that is influencing oil prices,” Habalián said.

“Above and beyond events like the withdrawal of Indonesia, which after all has been a net oil consumer for years, it’s the loss of its capability to guarantee a stable market that is hurting OPEC. In spite of the flow of cash to its members, the future of the group looks rather gloomy,” the expert concluded.