Economy Growth and Oil Import Requirement in Indonesia

Abstract

Indonesian oil consumption increase twice as fast as in the world, while domestic productions are declining. The impact is a steady growing dependence on imported oil, balance of payment of deficit economic and negative toward national energy security. An econometric model of Indonesia’s energy is constructed based on its energy balance model into 2030; makes projection of future energy needs; and simulates various alternative strategies to deal with energy dependency. The analysts use an energy balance model which estimated by two-stage least squares (2SLS) framework. This paper suggests that Indonesia oil import will be more affected by transportation fuel consumption rather than economic growth and it is estimated that Indonesia will become net importer energy in 2015. This simulation suggests that there are some potential factors to reduce the import dependence by reduce gasoline subsidize; increase oil production; and diversification from gasoline to Natural Gas Vehicle (NGV) or Liquefied Gas Vehicle (LGV) in transportation sector.

Keywords: 2SLS, energy diversification, energy projection, gasoline subsidize, oil import, balance of payment, energy balance model, national energy security