Fri, 02 Jun 1995

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)