Risky Bet: NOCs Risk Wasting $400B as Energy Transition Accelerates

Julia Payne
Tuesday, February 9, 2021

State-owned oil companies could squander about $400 billion on investments in the next decade on new oil projects that will struggle to turn a profit as the world shifts away from fossil fuels, a non-governmental organization said on Tuesday.

The Natural Resource Governance Institute (NRGI) estimated national oil companies, or NOCs, would invest $1.9 trillion in the next 10 years with about a fifth of those investments only breaking even if oil prices stay above $40 a barrel.

Oil prices have climbed to around $60 this week, after plunging below $20 last year when demand plummeted due to the coronavirus crisis. But the long-term outlook is weakening, as more analysts and energy firms see peak oil demand being reached sooner than the previous forecasts of the early 2030s.

"A huge amount of state investments in oil projects will likely only yield returns if global oil consumption is so high that the world exceeds its carbon emission targets," Patrick Heller, who co-authored NRGI's Risky Bet report, said in reference to goals set out in the 2015 Paris climate agreement.

Major oil companies like BP, Total, and Royal Dutch Shell have progressively lowered their long-term oil price estimates to the $50-60 a barrel range. But some analysts see even lower levels, depending on the pace of the energy transition.

In countries where NOCs are based, about 280 million people live below the poverty line. Funds invested in more challenging oil projects might be better spent on healthcare, education or diversifying the economy to reduce inequality, the report said.

"State oil companies' expenditures are a highly uncertain gamble," said David Manley, NRGI's senior economic analyst and also co-author of the report.

He said investments might turn a profit but could instead "pave the way for economic crises across the emerging and developing world and necessitate future bailouts that cost the public dearly."

The report said Middle East producers, such as Saudi Arabia, would be less affected as their break-even levels were lower. But higher cost African and Latin American countries faced bigger risks, with Mexico's Pemex and Angola's Sonangol already weighed down by debt.

The push by NOCs to pump more oil was already delivering poor returns. On average, just one dollar in every four dollars of revenue is returned to government coffers, the report said.

NRGI pointed to heavy investments by Azerbaijan's SOCAR and Nigeria's NNPC. It said half of NNPC's investments could turn into a loss if the global energy transition moved rapidly.

Other countries where investments should be reviewed included Algeria, China, Russia, India, Mozambique, Venezuela, Colombia and Suriname, it said.

(Reporting by Julia Payne; Editing by Toby Chopra and Edmund Blair)

Categories: Finance Oil Renewables Energy Industry News Activity

Related Stories

Petrovietnam, Partners Sign PSC for Block Off Vietnam

Japan Protests China’s New Oil and Gas Construction Activities in East China Sea

CNOOC Signs Hydrocarbons Exploration and Production Deal with Kazakhstan

Yinson Production, “K” LINE Target Europe's CCS with FSIU and LCO2 Solutions

Chuditch Gas Field Drilling Ops Get Delayed to Next Year

Fugro Expands Geotechnical Testing Capabilities in Indonesia

CNOOC Starts Production at Offshore Field in South China Sea

CDWE Wraps Up Pin Pile Installation Job for Taiwanese Offshore Wind Farm

TPAO, SOCAR and BP to Ink Caspian Sea Oil and Gas Production Deal

Fugro Lands Deepwater Gas Field Job in Southeast Asia

Current News

Centrica and Thailand’s PTT Ink Long-Term LNG Supply Deal

Petrovietnam, Partners Sign PSC for Block Off Vietnam

Japan Protests China’s New Oil and Gas Construction Activities in East China Sea

CNOOC Signs Hydrocarbons Exploration and Production Deal with Kazakhstan

Thailand's PTT to Buy LNG from Glenfarne's Alaska LNG Project

Woodside and Jera Agree LNG Cargoes Supply for Japan’s Winter Period

Petronas Expands Suriname Portfolio with Deepwater Block Acquisition

Japanese Oil and Gas Firm Enters Two Blocks off Malaysia

Yinson Production, “K” LINE Target Europe's CCS with FSIU and LCO2 Solutions

Woodside Agrees Long-Term LNG Supply with Petronas Unit

Subscribe for AOG Digital E‑News

AOG Digital E-News is the subsea industry's largest circulation and most authoritative ENews Service, delivered to your Email three times per week

https://accounts.newwavemedia.com