The International Energy Agency’s new report, Outlook for Producer Economies, found that oil and gas exporters will face “unprecedented challenges in years ahead.”
The report examined the outlook for six resource-dependent economies that are pillars of global energy supply: Iraq, Nigeria, Russia, Saudi Arabia, the United Arab Emirates and Venezuela. It forecast various potential scenarios up to 2040.
The oil price was a major consideration, but the report noted that exports have faced many challenges in recent years, including rising shale production, uncertainty over oil demand growth and new technology. These changes, among others, will mean major oil and gas exporters need “a renewed commitment to reform and economic diversification” in order to handle the changing global energy landscape, the report states.
“The rollercoaster in oil prices over the last decade has brought into sharp relief the structural weaknesses in many of the major exporters,” the report says. “Since 2014, the net income available from oil and gas has fallen by between 40% (in the case of Iraq) and 70% (in the case of Venezuela), with wide-ranging consequences for economic performance.”
For countries whose budgets depend on oil, this volatility is a dilemma, and IEA says the ability of producer countries to navigate economic transformation “can have major implications for energy markets, global environmental goals, and energy security.”
Major oil and gas exporters have weathered many upheavals in recent decades but a renewed commitment to reform and economic diversification will be vital to cope with the changing dynamics of global energy. These include rising production from new sources such as shale, uncertainties over the pace of oil demand growth and deployment of new energy technologies, according to a new report from the International Energy Agency.
“More than at any other point in recent history, fundamental changes to the development model of resource-rich countries look unavoidable,” said Dr Fatih Birol, the IEA’s executive director. “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.”
However, the agency also notes that higher oil prices could appear to reduce the urgency of reform even as they provide the necessary revenue to implement those reforms.
The report highlights six key response areas for oil and gas exporters: 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, said Dr Birol. “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.”
