Tue, 06 May 2003

Govt 2004 oil price target too conservative: Subroto

A'an Suryana, The Jakarta Post, Jakarta

Former energy minister Subroto said on Monday that the government's oil price assumption of US$17 to $20 per barrel in the proposed 2004 state budget draft was too conservative.

Subroto, a former secretary-general of OPEC, said it was unlikely that oil prices would immediately plunge to that level once Iraq quit the Organization of Petroleum Exporting Countries.

Subroto told The Jakarta Post that Iraq would require a huge investment and another four years to boost oil production beyond the prewar level of 2.5 million barrels per day.

He explained that a very low oil price assumption would limit government spending on economic development programs, which is crucial to push economic growth and create more jobs.

He suggested an oil price assumption of $20 to $22 per barrel.

The country's state budget has been heavily depended on revenue from oil for decades.

The current 2003 state budget assumes an oil price of $22 per barrel.

The government is currently in the process of debating the proposed 2004 state budget draft with House of Representatives Commission IX on the state budget and finance.

Separately, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Monday that the decision to propose a lower oil price assumption in next year's budget was based on rising uncertainty about the world oil market as Iraq was likely to quit OPEC.

"The key is Iraq. If Iraq quits OPEC, then the price of oil may continue to fall, and it will certainly affect our state budget assumption," Purnomo told reporters.

There has been growing speculation that Iraq will leave the oil cartel ever since the fall of Baghdad. There are fears that if it does, Iraq, which has the world's second largest oil reserves of around 250 billion barrels after Saudi Arabia, would boost production and flood the market with oil.

This concern has helped push oil prices down to around $25 per barrel compared to around $40 in the run-up to the Iraq war.

The U.S. is keen to see Iraq leave OPEC to push oil prices down and help the former's weak economy grow.

On the other hand, Iraq is tempted to quit OPEC in a bid to pump out more oil to help finance the reconstruction of its economy after the war.

But Subroto predicted that Iraq would not be able to boost its oil production to six million barrels per day before 2007, and next year the country's output would likely only reach 3.5 million barrels per day.