NNPC, others to record $400bn loss over global energy transition – Report

A new report released Tuesday has identified that huge economic loss may be encountered by the Nigerian National Petroleum Corporation, NNPC, if ongoing global energy transition moves rapidly.

The report titled: ‘Risky Bet: National Oil Companies in the Energy Transition”, the Natural Resource Governance Institute (NRGI), expressed worry that about half of NNPC’s investments in upcoming oil projects may turn into a loss if the global energy transition moves rapidly.

The state run oil corporation has in the last two years signed several multi million dollars contracts which included the AKK pipeline projects, amongst others. And only recently, the corporation said it was diversifying it’s investment into other sectors of the economy.

According to the report other countries where investments should be reviewed include Algeria, China, Russia, India, Mozambique, Venezuela, Colombia and Suriname.

NRGI revealed that 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, the non-governmental organisation.

“The global energy transition from fossil fuels to cleaner energy will profoundly affect the global economy. It will limit how much greenhouse gases humanity emits and hopefully avoid catastrophic global warming. This transition will, however, also have a profound effect on state-owned national oil companies (NOCs).

NOCs—in which the government is the sole or the dominant shareholder—produce half of the world’s oil and gas, and invest 40 percent of the capital in the global oil and gas industry. They are also important for millions of citizens in the developing countries where many NOCs operate,” the report stated.

The 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, Total and Royal Dutch Shell 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.”

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 long held 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.