Left behind: Emerging oil and gas producers in a warming world

Published in Climate Policy journal

Summary

The push for decarbonization is dampening resource prospects in nations with undeveloped oil and gas. It is critical to reduce greenhouse gas (GHG) emissions from the petroleum sector, but there are equity issues related to requiring a shift away from oil and gas before development gains are made, especially in countries that have contributed very little to historical emissions. We review the prospects for five emerging producers to produce oil and gas at the lowest emissions intensity while achieving their economic and environmental goals. We find they lack the required capacity for stringent emissions management and to manage transition risks. The low-carbon pathway presents its own challenges with plans that lack national specificity and offer no substitute to the fiscal potential of the petroleum sector, and a lack of supportive technical assistance and finance. A just transition (JT) approach in these countries will not be about reskilling as they move away from a petroleum dependent economy, but instead about engaging with citizens to break the mould of petroleum-led development expectations and defining the new pathway for development. These countries will require support for transition planning that ensures that any oil and gas production minimizes GHG emissions, and limits the risk of economic lock-in, to invest in broad-based benefits and in a credible shift to a low-carbon economy. Inadequate international support risks leaving some countries behind, or to essential changes being contested in the transition.

Key insights

  • Emerging producers are not yet dependent on the petroleum sector, and are broadly energy poor, climate vulnerable, lower income countries.
  • These countries hold high aspirations for the petroleum sector to address their development needs.
  • The growing consensus that there should be no new oil and gas projects creates perceptions by emerging producers of injustice around the transition and could result in change being contested or some countries being ‘left behind’.
  • A just transition approach for these countries will minimize the oil and gas resource curse and its economic lock in, to ensure the sector is developed with broad societal benefits that do not increase national emissions.

The Cost of an Emerging National Oil Company

 

  • The fall in oil prices since mid-2014 has profoundly changed the prospects for national oil companies (NOCs). If, as seems likely, prices remain low for a number of years, investors will be far more cautious, international oil companies will see reduced cash flows, and many exploration projects will be put on hold or cancelled. NOCs, and the oil and gas industry as a whole, must reconsider their strategies.
  • This will have an impact on the ambitious plans that some emerging producers had nurtured for national participation in the petroleum sector, forcing them to refocus on an affordable strategy for developing upstream capabilities.
  • Governments of emerging and prospective producer countries, and their NOCs, need to understand the cost of various NOC roles, and how these can be financed at different stages of developing the resource base. This will enable them to formulate clear and appropriate strategies for the future.
  • The current environment offers an opportunity for governments to refocus their efforts on defining a mandate that supports their national vision and priorities. This requires an evaluation of the resource base, national capabilities (including those of the NOC) and possible revenue streams, so that the NOC can be tasked with a role it can execute and the state can afford.
  • Governments must approve clear revenue streams for NOCs.
  • NOCs should focus on costs, as well as on strong accounting and reporting standards.
  • Governments and NOCs should be strategic about capacity-building, so that efforts and scarce resources are dedicated to building the right skills and using them on the job.

The report is available to download at the link below.

National Seminar for Suriname – Dutch

Het Nationaal Seminar Suriname werd op 18 oktober 2017 in Paramaribo gehouden, tijdens de jaarlijkse vergadering van de Discussiegroep Nieuwe aardolieproducenten. Tijdens het Nationaal Seminar Suriname kwamen vertegenwoordigers bijeen van de ministeries voor Natuurlijke Hulpbronnen, Arbeid, Financiën, Handel en Industrie, de maritieme autoriteit van Suriname, parlementsleden, de vereniging Surinaams bedrijfsleven, maatschappelijke organisaties en de aardolieindustrie. Dit seminar was bedoeld om beleidsmakers en nationale belanghebbenden te informeren zodat wordt nagedacht over de mogelijke wetgevings en organisatorische veranderingen bij een eventuele olievondst voor de kust van Suriname.

National Seminar for Suriname – English

The National Seminar for Suriname was held in Paramaribo on 18 October 2017, during the annual meeting of the New Petroleum Producers Discussion Group. The National Seminar for Suriname brought together representatives from the ministries of natural resources, labour, finance, commerce and industry as well as the maritime authority, members of parliament, Suriname’s business association, civil society leaders, and oil industry representatives. This seminar was designed to help policymakers and national stakeholders understand the changes in laws and institutions that would be required in the event of a confirmed discovery.

A summary of the National Seminar is available below.

Annual meeting 2017

The 5th annual meeting of the New Petroleum Producers Discussion Group was hosted by Staatsolie in Suriname and co-organized with the Commonwealth Secretariat and the Natural Resource Governance Institute.

The international group meeting focused on creating investment terms that incentivize oil companies to perform financially and operationally to the highest standards as well as contract administration and operational oversight issues. At the meeting, the group established three working groups, which aim to produce practical toolkits helping policymakers and regulators in the oversight of oil and gas operations.

During the National Seminar for Suriname, key government and non-governmental stakeholders came together to discuss Suriname’s evolving petroleum sector such as the possible impact of an oil discovery on Suriname’s development path, realistic assessments of local content opportunities and governance challenges.

The meeting included training sessions on assessing environmental impacts, understanding the effect of evolving global climate policy on petroleum projects, establishing a fit-for-purpose NOC, and ensuring effective project oversight. The Van Meurs Corporation also made its World Fiscal Model freely available to emerging producer governments in the group. A two-day course was offered to support governments’ use of the model and enable them to compare their fiscal model to other jurisdictions, calculate expected cash flow and assess bids in licensing.

Funding for this event was generously provided by the Ford Foundation, Staatsolie, Statoil, Tullow Oil, Kosmos Energy, Clyde & Co, the World Bank and project supporters, Shell and ExxonMobil.

A summary of the Annual Meeting is available at the link below.

Contemplating Oil Prospects, Suriname and Guyana Look to Peers

The article reports on the New Producers Group annual meeting that was held in Suriname in 2017. At the meeting, government officials from Suriname and Guyana were keen to learn from the experiences of their peers in the other new oil hotspots. Suriname and Guyana find themselves at different points in their life cycles as prospective oil producers. Guyana has already made large discoveries, while Suriname is at a more speculative stage of offshore exploration. Institutionally, Suriname has developed a small but capable administrative and commercial body—Staatsolie—as a result of its years of small-scale production, while Guyana is just beginning to build its administrative architecture in response to the discovery. But the two countries face a similar set of issues. Both have small populations and small economies. Suriname’s GDP is USD 3.6 billion, placing it 158th in the world. Guyana, which has a population just shy of 800,000, has a GDP of $3.4 billion, placing it 159th. This means that significant oil production could have a massive impact on these economies. If managed correctly, successful oil projects could mean a major boost to the development agenda of either country. But the potential for negative distortions—including budget volatility and the disruption of other sectors—is high if risks are not managed effectively.

A link to the original article is available below.