Revenue Decline Expected for Countries Whose Economies Depend on Fossil Fuels

As fossil fuel demand falls in line with the global clean energy transition, producer economies heavily dependent on fossil fuels are projected to experience revenue declines of up to 75 percent by 2030. According to information compiled by an AA correspondent from the International Energy Agency's (IEA) "Net Zero by 2050: A Roadmap for the Global Energy Sector" report, no new oil and natural gas fields or coal power plant investments are needed to limit global warming and meet the zero-emissions targets set by countries. As demand and investment in these fuels decline as part of the clean energy transition and climate crisis response, a contraction in oil and natural gas production is expected to have deep impacts on producer countries and companies in these sectors. In a scenario where oil prices are estimated to average USD 35 per barrel by 2030 and USD 25 through 2050, natural gas is calculated to trade at USD 1.9 to 5.2 per million BTU (British Thermal Unit) depending on region, while coal is projected at USD 20 to 60 per ton. Global coal demand is expected to fall 90 percent by 2050, comprising only 1 percent of total energy demand, while global natural gas demand is forecast to decline 55 percent to approximately 1.75 trillion cubic meters and daily oil demand to fall 75 percent from the approximately 90 million barrels in 2020 to 24 million barrels. As a result of declining fossil fuel demand and reduced investment in this sector tied to accelerating clean energy transformation globally, oil and gas producer countries are projected to experience revenue declines of up to 75 percent by 2030. Countries including Nigeria, Mozambique, Iran, Iraq, Kuwait, Russia, Oman, Saudi Arabia, Turkmenistan, Azerbaijan, the United Arab Emirates and Venezuela face the risk of annual per capita income declining from the current USD 1,800 level to as low as USD 450 by 2030.

Income losses could reach USD 9 trillion over 20 years

As these economies dependent on fossil fuel revenues require new income sources and structural reforms to diversify, these measures are not expected to fully compensate for lost oil and natural gas revenues. According to the London-based think tank Carbon Tracker, oil producer countries are estimated to experience income losses approaching USD 9 trillion over the next 20 years. Iraq, whose economy is 89 percent dependent on oil and gas revenues, ranks first among the most vulnerable countries in this regard, followed by Equatorial Guinea at 81 percent, South Sudan at 78 percent, Bahrain and Libya at 72 percent, and Saudi Arabia at 69 percent. Kuwait's economy is 67 percent dependent on oil and natural gas revenues, Azerbaijan's is 64 percent, while the United Arab Emirates and Nigeria derive 52 percent and 45 percent of their revenues respectively from oil and natural gas. Oil and gas sectors account for 23 percent of Russia's economy.

State budget expenditures on oil and gas exceed health spending

In this context, national oil companies use significant portions of state budgets to undertake oil and natural gas investments, positioning these companies at the forefront of their countries' energy transition goals. According to data from the New York-based Natural Resource Governance Institute, as oil prices remain depressed and fossil fuel demand continues to decline due to energy transition, the value of Mozambique's national oil company ENH faces a risk of 179 percent relative to government expenditures. This ratio stands at 157 percent for Azerbaijan's national oil company SOCAR, 61 percent for Oman's OOC, 53 percent for Nigeria's NNPC, 36 percent for Algeria's Sonatrach, 31 percent for Qatar Petroleum and 27 percent for Russia's Gazprom. These expenditures allocated to oil and natural gas investments in these countries exceed annual health spending levels.

"Countries should spend their current revenues on clean energy transition"

Lisa Fischer, Program Leader at the London-based research organization E3G, said that declining oil and natural gas revenues pose the greatest risk to new and developing producer countries. Pointing out that many African countries are in this situation, Fischer said: "We can take Mozambique as an example, which has committed to significantly developing wind and gas production as well as LNG facilities and has tied itself to international credits that need to be repaid."

Noting that these countries would struggle to repay loans if they cannot sell oil and natural gas as a result of climate change efforts and clean energy transition, Fischer continued:

"Anyone wanting to grow with unnecessary infrastructure increases risk, but those most vulnerable are new producers or new production fields because they have not yet amortized costs. Like in Mozambique, this process can take many years depending on oil and gas prices. Repaying these credits takes a very long time. The second risk group is countries that especially supply oil and gas to Europe, because Europe has serious commitments to reducing gas demand. The European Union aims to reduce gas consumption by 30 percent by 2030, and suppliers to the EU will face these risks seriously. Russia, Algeria and Norway lead among these countries." Fischer noted that countries in transit positions for supplying Europe would also be affected by this transition, saying: "Anyone dependent on Europe as a market will be significantly affected. Therefore, it is not too late for countries at risk of losing revenues to somehow take the driver's seat, keep pace with the transition and begin transforming their economies." Emphasizing that these countries need all available cash from oil and gas revenues to transform their economies, Fischer stated: "By investing the revenues they obtain from here in renewable energy, energy efficiency and clean energy transition instead of fossil fuels, they can build stronger economies." Kingsmill Bond, Energy Strategist at Carbon Tracker, pointed to the vulnerability of economies dependent on fossil fuels and lacking resource diversification, saying: "These countries must rapidly implement their transformation to keep pace with the new world. Of course, Türkiye, which possesses massive renewable energy resources but is a fossil fuel importer, will reap significant gains from the clean energy transition."     Source: AA