By Julia Payne
LONDON (Reuters) - National oil companies (NOCs) risk squandering $400 billion on expensive oil and gas projects over the next decade that may only break even if the world fails to meet the Paris climate goals, a non-governmental organisation said on Tuesday.
In a new report called Risky Bet, the Natural Resource Governance Institute (NRGI) estimated that NOCs could invest $1.9 trillion over the next ten years, meaning one-fifth of those investments would be unviable unless the oil price stayed above $40 a barrel.
Major oil companies like BP (NYSE:BP), Total and Royal Dutch Shell (LON:RDSa) have already progressively lowered their long term price estimates, now in the $50-60 a barrel range, while some analysts see even lower levels depending on the energy transition scenario.
The result could worsen inequalities as funds that could have been better spent on healthcare, education or diversifying the economy might instead create an economic crisis. Many of these NOCs are based in countries where 280 million people live below the poverty line.
"State oil companies' expenditures are a highly uncertain gamble," David Manley, senior economic analyst at NRGI and report co-author, said.
“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.”
(Graphic: NRGI risky NOC investments by region: https://fingfx.thomsonreuters.com/gfx/ce/xklpyoelxpg/NRGI%20with%20source.png)
The report said that producers in the Middle East, such as Saudi Arabia, would be less impacted as their break even levels were much lower but African and Latin American countries would have more trouble.
A heavy debt burden is already an issue for Mexico's Pemex as well as Angola's Sonangol. Compounding the issue is the longheld expansionist view at many NOCs, along with a lack of transparency. On average, just one dollar in every four dollars of revenue is returned to government coffers, the report said.
Azerbaijan's SOCAR and Nigeria's NNPC were of particular concern, according to NRGI. About half of NNPC's investments in upcoming oil projects may turn into a loss if the global energy transition moves rapidly. Other countries where investments should be reviewed include Algeria, China, Russia, India, Mozambique, Venezuela, Colombia and Suriname.