Many government plans for oil and gas sector ‘could be economically unviable’

9 Feb 21

State-owned oil companies risk wasting $400bn on oil and gas projects that will only break even if the world fails to meet the Paris agreement climate goals, according to a report from an NGO.

The Natural Resource Governance Institute, which aims to improve countries’ use of their oil, gas and mineral resources, found that one-fifth of anticipated investments in the oil and gas sector are economically unviable if global warming is to be kept within 2 degrees.

“A huge amount of state investments in oil projects will likely only yield returns if global oil consumption is so high that the world exceeds its carbon emission targets,” said Patrick Heller, NRGI advisor and co-author of the report.

“This risky spending has major implications for the economic futures of national oil companies’ home countries.”

Heller said companies in developing and emerging countries such as Algeria, Mexico and Nigeria might altogether invest more than $365bn in such projects – money that could otherwise be spent on their development.

The report found Algeria, Angola and Azerbaijan are making particularly ‘risky’ bets with public money, with more risk also generally found in Africa and Latin America, and less in the Middle East, thanks to lower break-even levels.

“State oil companies’ expenditures are a highly uncertain gamble,” said NRGI senior economic analyst and report co-author David Manley.

“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.”

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