PETROLEUM FUELS IN INDONESIA: AN ECONOMETRIC ANALYSIS AND QUARTERLY DEMAND MODEL

In this study the author examines the domestic demand for petroleum based liquid fuels in Indonesia. Eight fuels are examined individually and in aggregate. These are: aviation gasoline, aviation turbine fuel, high-octane automotive gasoline, regular-octane automotive gasoline, kerosene, motor diesel fuel (ADO), industrial diesel fuel (IDO), and fuel oil. The principal data base consists of quarterly national sales data for the twelve-year period 1971(I) through 1982(IV).;The principal methodology consists of developing reduced-form demand equations for each fuel using multiple regression techniques. Alternative equation specifications are examined using accepted statistical tests and a final equation is selected for each fuel. These equations are then integrated into a consolidated forecasting model which incorporates the key variables influencing demand and relates these to the appropriate fuel equation. The principal independent variables examined are: consumer income, own fuel price, substitute fuel price, stock of fuel-using equipment, consumer habit (Koyck specification) and seasonal influences.;The integrated demand model is subsequently used to develop "ex-post" (historical) simulations of fuel demand over the observation period. These simulations are compared to actual demand and measures of simulation error are employed to assess the reliability of the individual equations. The model is then used to develop a two-year "ex-ante" forecast of the quarterly demand for each fuel beginning in 1983(I) and continuing through 1984(IV).;Based on these examinations, the author concludes that the final demand model is suitable for short-term forecasting involving one to four quarters and should serve as a useful tool for developing quarterly sales quantity and revenue projections.;The author reviews the nature of Indonesia's economic growth during the last twenty years and highlights the importance of the energy-income relationship as well as Indonesia's historical dependence on petroleum fuels. Changing patterns of petroleum fuel demand and supply are examined as well as their effects on the country's energy self-sufficiency. The author argues that a need exists for improved demand management tools and more accurate consumption forecasts.