A total of 40 oil and gas-producing countries could face a shortfall of $9 trillion in government revenues over the next 20 years, as demand falls in line with the tightening global climate policy and technological advances, a new report from Carbon Tracker said Thursday.
The London-based think tank's report, Beyond Petrostates: The Burning Need to Cut Oil Dependence in the Energy Transition, calculated that 40 petrostates could see an average 46% drop in expected revenues from oil and gas as the world goes through an energy transition to clean sources.
These countries need strong international support to diversify their economies and avoid social and political instability, the report said.
The report called on petrostates to act now to reduce their dependence on oil and gas revenues by cutting public spending, raising new taxes and restructuring their economies.
"Continuing to invest in new oil and gas projects risks creating stranded assets and wasting capital that would be better spent on developing sustainable new industries," it warned.
Over 400 million people live in the 19 worst affected countries where declining fossil fuel revenues could see total government income fall by at least 20%, leading to cuts in public services and job losses, the report found.
Half of these live in Nigeria, where a 70% drop in oil revenues would cut total government income by a third and Angola, home to 33 million, could lose over 40% of government income.
The report found that as well as Angola, Azerbaijan is also among seven countries that could lose at least 40% of total government revenues.
Nigeria, Algeria, Saudi Arabia, Kuwait and Iraq are among 12 petrostates that could lose 20%-40% of their revenues while Mexico, Russia and Iran are among ten countries that could lose 10%-20% of revenues, according to the report.
"Norway and Malaysia are less vulnerable among the petrostates because of their diversified economies, but still stand to lose 5%-10% of government revenues," the report said.
In addition to the 40 petrostates, many of the world's biggest oil and gas producers, including the US, UK, China, India, Brazil and the Netherlands face major drops in revenues but these countries are not the focus of the study as their economies are more diverse and less dependent on oil and gas.
All oil-producing countries worldwide have the risk of losing $13 trillion by 2040 marking a 51% drop, the report shows.
"It’s in the interests of all nations to minimize global temperature rise and this means rapidly reducing our use of fossil fuels. But many countries are heavily reliant on oil revenues. The time to act on rebalancing their economies is now. Waiting for demand to fall will be leaving it far too late," Mike Coffin, the author of the report and senior oil, gas and mining analyst said.
Head of Climate, Energy and Industry at Carbon Tracker, Andrew Grant, said that government oil revenues will shift dramatically as the market shakes out during the energy transition.
"Understanding the scale of the challenge and which nations are most vulnerable will help policymakers focus their efforts. Cushioning the landing for hundreds of millions will deliver better outcomes for both climate and human development," he noted.
According to the report, it is in the international community's interests to help petrostates successfully navigate the energy transition by reducing their dependence on fossil fuel production to meet global climate targets and avoid instability and social unrest as the global economy is decarbonized.
The scale of initial investments in renewable energy sectors in some of these petrostates is not enough to meet the challenge and the pace of the energy transition, the report warned.
By Nuran Erkul Kaya