UAE Among Petrostates To Lose $8trn Of Fossil-fuel Income By 2040

The United Arab Emirates is one of dozens of petrostates that risk losing more than half their expected income from fossil fuels as the world shifts to clean energy, reports said.

Global demand for fossil fuels could peak before the end of 2030, the International Energy Agency (IEA) forecast in October. But what does that mean for oil and gas dependent countries like COP28 host the UAE?

If fumbled, “it could cause a serious dent in government finances and spiralling social unrest” reports said.

“Electricity is expanding to become the basis of our entire energy system, driven by falling costs of wind, solar and batteries,”Senior oil and gas analyst, Guy Prince said.

“This is a profound threat to oil and gas exporting nations, because falling demand for oil and gas is likely to lead to a significant fall in future revenues.”

As demand declines with falling prices exacerbated by oversupply up to 40 petrostates could see oil and gas revenues plummet from an expected $17 trillion (€15.6 trillion) to just $9 trillion (€8.3 trillion) in the years to 2040.

For 28 high-cost producers like the UAE and Saudi Arabia, more than half their expected revenue could be wiped out in even a moderate transition scenario. So what can they and the rest of the world do about it?

Oil and gas demand is dropping as world acts on climate crisis.

Governments across the world are adopting tougher climate policies in response to unprecedented wildfires, heatwaves, floods and droughts as the climate crisis bites.

The remaining ‘carbon budget’ – the amount of CO2 that can be emitted while keeping the world within the ‘safe’ limit of 1.5°C global warming – is rapidly depleting.

At COP28 this month, the EU is pushing for a world-first deal to phase out the ‘unabated’ global use of fossil fuels.

And if current government policy pledges are met, the IEA estimates that demand for oil – which pushed 100 million barrels a day in 2019 – will drop to 92.5m b/d in 2050, and 54.8 m b/d by 2050.

Despite the writing on the wall, a number of petrostates have plans to increase oil and gas production and exploration.

The UAE’s state-owned oil company ADNOC, for example, is the world’s tenth largest producer of oil and gas, and it plans a huge increase in production according to recent data from the Global Oil and Gas Exit List (Gogel).

The UAE relies on oil and gas for 40 per cent of government income, but production revenue could be 60 per cent lower than expected. Saudi Arabia, the world’s biggest oil exporter, faces a similar situation.

Six African states are highly vulnerable, with more than 60 per cent of their total budget at risk. These are: Nigeria, home to 215 million people, Angola, Chad, Congo, Equatorial Guinea and Gabon. In all countries but Gabon, oil and gas revenues could be over 70 per cent lower than expected. Venezuela is one of the countries at greatest risk from the necessary energy transition.

Government finances are entirely dependent on fossil fuel revenues, and these could be over 80 per cent below what is expected. Reports said.

Governments earn revenues through state-owned national oil companies (NOCs) and through taxing oil and gas production. When demand falls, much production will no longer be economic and lower prices will bring less revenue from the remaining producing projects.

This raises serious questions about how countries will continue to meet the development needs and expectations of their populations, especially as these populations grow.

“In many petrostates, a political settlement has become established where citizens expect high public sector salaries and low or zero-income taxes along with a generous welfare state,” Guy Prince said.

Africa’s population is expected to double to 2.5 billion by 2050 when it will be home to one in four of the world’s people, the report notes.

“Clearly, such rapidly growing populations in oil and gas revenue dependent states, that are relatively less developed, is a dangerous combination in a future of declining oil and gas demand,” Prince says.

“Governments should waste no time in reducing their dependence on fossil fuel revenues and take steps to make their economies more resilient and better equipped for a low-carbon future,” urges Prince.

The main way for petrostates to avoid being dragged down by dropping oil and gas demand is to diversify their economies, and invest in new sectors.

The report also calls for an end to subsidies for fossil fuel consumption, which will reduce pressure on government finances. And for a broader tax base that will bring in more income to state coffers.

The United Arab Emirates offers a mixed bag of examples. Dubai has achieved successful diversification, according to Carbon Tracker. Oil once accounted for more than 50 per cent of its GDP, but today it is less than 1 per cent because the emirate has built a dynamic economy, also including import and exports logistics, finance, property and tourism.

 

Olusola Akintonde/ Euronews