Oil companies (NOCs) risk wasting $400 billion on oil and gas projects over the next decade, which could even things out if the world fails to meet the Paris climate targets, says, the NGO, Natural Resource Governance Institute (NRGI).
In a new report called Risky Bet, NRGI estimates that NOCs could invest $1.9 Billion over the next ten years, meaning that a fifth of those investments would be unviable unless the price of oil stays above $40 a barrel.
Big oil companies like BP, Total and Royal Dutch Shell have already progressively reduced their long-term price estimates, now in the range of $50 to $60 a barrel, while some analysts see even lower levels depending on the energy transition scenario.
The result could worsen inequality, as funds that could have been well spent on health, education or diversifying the economy may instead create an economic crisis. Many of these oil companies are based in countries where 280 million people live below the poverty line.
“Oil company spending is a highly uncertain bet,” said David Manley, economic analyst at NRGI.
“They could pay off, or they could pave the way for economic crises across the emerging and developing world and necessitate future bailouts that cost the public dearly.”
The report points out that producers in the Middle East, such as Saudi Arabia, would be less affected as their balance levels are considerably lower, however countries in Africa and Latin America would have more problems.
Debt is already a problem for Mexico’s Pemex, as well as Angola’s Sonangol. To compound the problem is the long-standing expansionist view in many oil companies, along with a lack of transparency. On average, only one dollar in every four dollars of revenue is returned to government coffers, the report said.
Azerbaijan’s SOCAR and Nigeria’s NNPC were of particular concern, according to NRGI. About half of NNPC’s investments in future oil projects could turn into losses if the global energy transition occurs quickly. Other countries where investments should be reviewed include Algeria, China, Russia, India, Mozambique, Venezuela, Colombia and Suriname.
