Global Geopolitics Vulnerable to Weakening Indonesia's Energy Security

The high demand for imports of petroleum commodities makes Indonesia vulnerable to world geopolitical turmoil.

KOMPAS/TOTOK WIJAYANTO (TOK)

The landscape of the East Pondok Aren-001 exploration well area in Sukawijaya Village, Tambelang, Bekasi Regency, West Java, on Saturday (23/12/2023). PT Pertamina Hulu Energi has just discovered an oil reserve in the well. Test results showed that the new oil reserve is estimated to have a deposit of 92.79 million barrels of oil equivalent (MMBOE).

The world's geopolitical situation is vulnerable to impacting Indonesia's macroeconomic conditions. The high demand for imported commodities, especially crude oil, makes Indonesia easily influenced by global turmoil, particularly in geopolitical tensions involving oil-producing countries. The national energy status that is labeled as "resilient" is actually very vulnerable.

According to a report by the National Energy Council (DEN), the assessment of Indonesia's energy resilience index in 2023 reached 6.64. The index value based on 2022 data indicates that Indonesia's overall energy resilience is in a "stable" condition.

This "resistant" status has been going on since at least 2016. The national energy security index number has always been in the 6 point range. If traced from 2016-2022, the national energy security index continues to creep up. rising trend value. The index figure in 2022, which is 6.64, is the highest for the time being. So, what does achieving this index number mean for national conditions?

Based on Government Regulation No. 79/2014 concerning National Energy Policy (KEN), energy resilience is defined as a condition of guaranteed energy availability and community access to energy at affordable prices in the long term, while still paying attention to environmental protection.

To monitor the condition of energy security, the government carries out regular assessments to see the level of dynamism. This assessment is carried out based on four aspects of the approach known as the "4 A's". Consists of aspects of affordability, accessibility, availability, and acceptability. These 4 aspects are assessed by expert judgment from a number of experts in their fields. For example, from government elements, DEN, energy sector business entities, universities, and energy-related institutions or organizations.

From that assessment, it can be seen which aspects need to be immediately improved so that the national energy resilience status can continue to be enhanced. The higher the index figure, the better and stronger the national energy resilience condition will be.

Also read: Domestic Economic Resilience Curbs the Impact of the Iran-Israel Conflict

Referring to the results of the 2022 measurement, the four monitored aspects show an average score per aspect above 6 points, which means "resilient". This "resilient" status falls within the range of 6-8 points. More than 8 points means "very resilient", while less than 6 points indicates vulnerability. The breakdown consists of the "less resilient" status with a score of 4-6; "vulnerable" with a score of 2-4; and "very vulnerable" with a score of "less than 2".

Even though the four aspects measured have an average status of "resistant", if studied more deeply, it turns out that there are sub-aspects whose condition is classified as very vulnerable. Be it aspects of affordability, accessibility, availability, or acceptability, they all have sub-aspects that are quite vulnerable.

One of the most vulnerable sub-aspects is the energy imports sub-aspect which is part of the affordability aspect. In the explanation, availability is defined as the availability of energy and sufficient energy sources for domestic needs. This aspect is weighted by at least four indicators. Consisting of energy reserves and productivity, energy imports, national energy reserves, and commitment to meeting domestic needs.

Of the four variables weighting the availability aspect, only the energy import sub-aspect has a score below 4, while for the other sub-aspects the average is around 6-8 points. The energy import subaspect score of 3.89 indicates that national energy imports are in a "vulnerable" condition.

Energy imports

This low energy import score should be a serious concern for policy makers and also the authorities responsible for providing energy supplies for society. Of all types of energy consumed nationally, both for government, industry, households and the service sector, petroleum commodities are a form of energy that is highly dependent on foreign countries.

Based on data from the bp Statistical Review of World Energy 2022, Indonesia's oil production in 2021 amounted to 692,000 barrels per day. However, the daily consumption needs of petroleum products reach 1,471,000 barrels per day. This means that there is a deficit of around 770,000 barrels every day, which must be sourced from imports from several countries.

The high dependence on petroleum imports, which is more than 50 percent, makes Indonesia's position in the net importer category. This position is relatively very risky for national macroeconomic conditions. This is because the price of petroleum commodities and their derivatives are very susceptible to being influenced by world macro conditions. Any issue that is occurring internationally is very vulnerable to triggering financial market sentiment which causes world oil prices to creep up. For example, issues of geopolitical tensions, scarcity of energy products on the global market, economic embargoes, and issues of monetary policy carried out by superpower countries.

Several of these issues have the potential to drive up global energy prices, putting pressure on the distribution costs of goods and services. The increasing transportation costs lead to higher prices for goods and services, causing inflation and decreasing consumer purchasing power. This situation is vulnerable to slowing down the circulation of money, and affects global economic growth.

Also read: Fossil Energy Continues to Overshadow World Economic Turmoil

To anticipate this, every country, especially oil-importing countries, then implements various policies to protect their country from economic turmoil that triggers an economic contraction. One way is to balance domestic market prices with subsidy interventions so that prices remain stable.

For countries with good financial planning and budget management, the world energy price fluctuations can be constantly controlled in accordance with projections without affecting the allocation of other budgets. However, for countries that are relatively unprepared for the high-rising global price changes, there is a possibility of triggering negative sentiment from the public. Budget constraints may encourage governments in such countries to implement tax subsidy reductions to save their country's economic growth.

As a result, the community has to bear the continuously increasing energy prices accompanied by a rise in general prices. This will undoubtedly have negative implications for a country's progress as economic growth rates slow down and may even turn negative due to the high prices of commodities.

The ongoing conflict in the Middle East, namely tensions between Israel-Palestine and Israel-Iran, is very vulnerable in triggering an increase in world energy prices. The escalation of war that may spread in the Middle East region has the potential to significantly raise world energy prices. With the central role of Middle Eastern countries as the world's largest producers and exporters of oil and gas, geopolitical tensions in this region are highly risky for global energy resilience. If this resilience is shaken due to geopolitical situations, there will be a huge economic turbulence for oil-importing countries worldwide, including Indonesia.

Alternative solution

Therefore, Indonesia must immediately minimize its dependence on imported energy from abroad, both in the form of crude oil, finished products (BBM), and also LPG. There are several alternative solutions to overcome this.

One of the ways to encourage the production of oil and gas (migas) is to increase the supply domestically. Proper regulatory support is expected to attract more exploration investors in migas in Indonesia and also open opportunities for acquiring migas fields overseas. This effort will increase national migas reserves that play a role in increasing domestic energy production.

The next step is to increase the capacity of advanced technology oil refineries in the country so they can produce more crude oil with high efficiency rates. This will further reduce the import of processed oil which is more expensive than crude oil.

Also read: The Real Threat of Fossil Energy Scarcity

KOMPAS/PRIYOMBODO

Officers install meters for the household gas network which is being developed in the Villa Mutiara Serpong residential area, North Serpong, South Tangerang, Banten, Saturday (23/3/2024). Based on data from the Directorate General of Oil and Gas, Ministry of Energy and Mineral Resources, the use of natural gas for the gas network in 2023 will only be 16.14 billion bristh thermal units per day (BBTUD) or 0.43 percent of the total domestic natural gas distribution of 3,745 BBTUD.

In addition, it is also possible to continue developing the use of natural gas (LNG) to reduce dependence on LPG which is heavily imported. This requires support from the central government to local governments so that the development of the LNG network for the commercial sector can run optimally.

Finally, the government must also begin to educate the public by reducing energy subsidies for everyday needs. The government must be able to implement subsidies with precision so that the burden on the national finances does not become even heavier. On the other hand, the public will become more educated about consuming energy in accordance with their socio-economic status.

By implementing a number of these steps, it is hoped that national energy security will increase so that it will be further away from the negative effects of global conditions which continue to change, be volatile and full of uncertainty. (R&D COMPAS)