Major oil and gas exporters need to reform and diversify their economies in order to overcome the financial risks in the years ahead, the new report by International Energy Agency (IEA), Outlook for Producer Economies, observed
The changing dynamics of global energy like production from new sources such as shale, uncertainties over the pace of oil demand growth and deployment of new energy technologies pose a challenge to the exporters, the report said.
The special report in the World Energy Outlook series examined six resource-dependent economies that are pillars of global energy supply: Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates and Venezuela. It assessed how they might fare to 2040 under a variety of price and policy scenarios.
The rollercoaster in oil prices over the last decade has brought into sharp relief the structural weaknesses in many of the major exporters.Since 2014, the net income available from oil and gas has fallen by between 40 per cent (in the case of Iraq) and 70 per cent (in the case of Venezuela), with wide-ranging consequences for economic performance.
The volatility of hydrocarbon revenues presents dilemmas for countries whose budgets depend on them, especially if their economies and finances are not resilient. The extent to which producer countries steer through essential economic transformation can have major implications for energy markets, global environmental goals, and energy security, according to the report.
Fatih Birol, the IEA’s executive director, said, “More than at any other point in recent history, fundamental changes to the development model of resource-rich countries look unavoidable. Following through with the announced reform initiatives is essential, as failure to take adequate action would compound future risks for producer economies as well as for global markets.”
The energy sector has an important part to play in the reform agenda. This report focuses on six key responses: capturing more domestic value from hydrocarbons, for example via petrochemicals; using natural gas as a means to support diversified growth; harnessing the large but under-utilised potential for renewable energy, especially solar; phasing out subsidies that encourage wasteful consumption; ensuring sufficient investment in the upstream (the ability to maintain oil and gas revenues at reasonable levels is vital for economic stability); and playing a role in deploying new energy technologies, such as carbon capture, utilisation and storage.
“The reform process should be much wider than energy, but it relies on a well-functioning energy sector. Successful reform programs can open a broader range of strategic options for producers, as well as new opportunities for engagement on a range of energy issues. There is a lot at stake,” concluded Birol.
