The largest oil and gas producers are under pressure to make fundamental changes to cut their reliance on energy revenues, according to a report released by the International Energy Agency (IEA) on Thursday.
'The shale revolution in the U.S., technological change, the drive for energy efficiency and the long-term response to climate change all imply sustained pressure on development models that rely heavily on hydrocarbon revenues,' the IEA said in a special report from the World Energy Outlook (WEO) series.
'In response to these changing conditions, many major producers are displaying a renewed commitment to reform and economic diversifications,' the agency said, and added that how these producers respond to a changing policy and market environment is crucial not only for their own future prospects, but also for global energy markets, energy security and the achievement of global sustainable development goals.
The report highlights the importance of reform programs for economic and social development of producer economies, focusing on six economies, Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates and Venezuela. Oil and gas exports make up at least one-third of total exports of goods and revenues from oil and natural gas in these economies, which contribute at least one-third to the respective country’s total fiscal revenue.
According to the report, net income from oil and gas will grow, particularly after the mid-2020s when oil production from the U.S. is projected to plateau. However, the imperative for reform remains strong for the WEO's scenario, given the risk of market volatility, continuing long-term policy uncertainty and the need to create new jobs, especially for large and youthful populations in Iraq, Nigeria and Saudi Arabia.
Demand for oil will grow by more than 10 percent to above 106 million barrels per day by 2040, while natural gas demand will increase by over 40 percent to 5,400 billion cubic meters, according to the WEO's scenario. 'Oil and natural gas demand growth and gradually rising prices appear to present a relatively benign outcome for producer economies,' the report showed.
However, recent history suggests that higher prices would encourage new, higher cost production in other parts of the world, setting the stage for prices to fall again.
According to the report, the risks multiply in a lower oil price environment, and in a case in which oil prices settle in a $60-$70 per barrel range, net oil and gas income will never recover to 2010-15 levels, leading to a cumulative $7 trillion loss in revenue over the period to 2040 compared with the WEO's scenario.
'Without far-reaching reforms, this would translate into large current account deficits, downward pressure on currencies and lower government spending,' the report concluded.
By Firdevs Yuksel
Anadolu Agency
energy@aa.com.tr