Oil prices likely to fall if OPEC not unified: Expert

Oil prices likely to fall if OPEC not unified: Expert

JAKARTA (JP): Subroto, a former secretary-general of the
Organization of Petroleum Exporting Countries (OPEC), warned
yesterday that oil prices may erode if OPEC fails to prevent
Gabon from quitting the organization.

Subroto, who is also a former minister of mines and energy and
a former OPEC president, told reporters that OPEC's meeting
slated next month should find ways to keep the organization's
unity.

"If we see from Gabon's oil production level, it's quite
small. But the more important thing is to keep the unity within
OPEC," Subroto said before a luncheon meeting at the Shangri-La
Hotel for the introduction of the Foundation of Indonesian
Institute for Energy Economics.

Gabon, whose production quota is set by OPEC at 287,000
barrels per day (bpd), is threatening to leave the group unless
its annual membership fee of US$1.7 million is lowered.

OPEC groups Algeria, Gabon, Indonesia, Iran, Iraq, Kuwait,
Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and
Venezuela.

Contributions to the OPEC budget are shared equally by all the
12 members regardless their production levels. The level of
contribution of Gabon, therefore, is set at the same level as
that for Saudi Arabia, whose quota is eight million bpd.

"If Gabon leaves the organization... people will rethink the
importance of OPEC and ask whether there should be an OPEC or
not," Subroto said. "What does it mean? There would be totally
free competition."

He explained that with free competition, prices will refer to
the lowest production cost. Therefore, oil prices could go down
to below US$10 per barrel as production costs in a number of
Middle East countries are lower than $10 per barrel.

He also suggested that to maintain the current oil price
levels, OPEC, in next month's meeting, keep its production quota
of 24.52 million bpd, which was introduced in Bali's meeting last
November.

Demand

In his oration at the Foundation of Indonesian Institute for
Energy Economics gathering, Subroto noted that OPEC is required
to meet the world's increasing oil demand as the production
levels of non-oil countries will even out at some 40 million bpd
until 2005 before going down afterwards.

Present at yesterday's gathering were Minister of Mines and
Energy Ida Bagus Sudjana, the president of state oil firm
Pertamina, Faisal Abda'oe, and senior economists Sumitro
Djojohadikusumo and M. Sadli.

By the year 2010, Subroto said, OPEC has to provide 33.4
million to 57 million bpd as the world's estimated oil demand
will reach 80.4 million to 96 million bpd.

He noted that demand for oil in the Asia-Pacific region, the
fastest growing region, will increase drastically from 14.2
million bpd at present to 18.47 million bpd in 2000 and to 21.63
million bpd in 2005.

Meanwhile, the pace of the increase in the region's production
level is estimated to be very slow -- from 6.76 million bpd in
1993 to 7.1 million bpd in 2000 and to 7.2 million bpd in 2005.

While China has become a net oil importing country since 1993,
Indonesia is predicted to follow suit within the next 20 years.

Subroto suggested that the government be aggressive in
attracting foreign investment for the energy industry development
to prolong Indonesia being a net oil exporting country.

"Indonesia actually has potential reserves of some 48.8
billion barrels of oil but only some 10.9 billion barrels have
been discovered," he said in his speech on energy in the chaotic
world.

Subroto said Indonesia needs a lot of capital resources for
extensive oil exploration to discover the 40 billion barrels of
potential reserves. However, he did not mention how much money is
needed to locate those potential reserves.

"We have not enough funds to do it ourselves and therefore we
need foreign capital. But competition to attract foreign capital
is getting fiercer," he said.

He said that because foreign capital will go to countries
offering the highest returns, the Indonesian government should
give more incentives than its competitors do.

Subroto also said that Indonesia's energy consumption last
year was still too heavily dependent on oil resources, about 58
percent of all energy needs, followed by natural gas at 25
percent, coal at 8.8 percent, hydro-energy at 6.7 percent and
geothermal steam at 1.3 percent. (rid)