The accelerating pace of global energy transition could bring an early end to the million-dollar tax income oil-producing countries are used to earning, a new report has said.
According to the report by international energy research firm, Rystad Energy, Nigeria and governments of other oil-producing nations could kiss the trillion-dollar oil income from oil windfalls goodbye as the actions to eliminate fossil fuels gain momentum.
“Petrostates will miss these former glories…. as the accelerating energy transition will cause this source of state income to shrink and never again exceed or meet $1 trillion,” Rystad warned.
As crude oil prices climbed to $71 per barrel on Friday, the Oslo-based consultancy forecast that 2021 will be the last year that global oil and gas taxes will approach the 1 trillion-dollar mark, probably reaching about $975 billion.
“From 2022, taxes will be limited to the low $800 billion range, only ticking up in the early 2030s to about $900 billion, before starting their final and uninterrupted decline to as low as $580 billion in 2040 and about $350 billion in 2050,” the report predicted.
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Despite previous warnings similar to the Rystad Energy report, Nigeria has failed to diversify its exports away from oil, relying on crude oil sales for around 90 percent of its foreign exchange earnings and more than half of government revenue.
A recent report by the Natural Resource Governance Institute (NGRI) has shown that the Nigerian National Petroleum Company (NNPC) is poised to take heavy losses, particularly with Big Oil lowering its long-term price estimates for oil and intensifying its race for net-zero.
Data from NNPC showed Nigeria’s crude oil export revenues slumped by as much as 98 percent from March to April this year. The April revenues from oil exports stood at $1.764 million, according to the NNPC, compared to $87.14 million (35.72 billion Naira) for March.
Worse still, Nigeria is still in the process of passing a bill that is both over two decades old and has oil as its key component, with only a negligible reference to renewable energy.
“Nigeria does not have the relevant legal and policy framework for a transition and not nearly for the thriving renewable energy industry. With bits and pieces of dated aspirational documents here and there, populated with missed targets, the country is clearly not in the race for net-zero,” Caleb Adebayo, energy and environmental lawyer at New York University School of Law said.
Rystad suggested that many Nigeria and other countries that remain dependent on tax revenues from the upstream industry may be left with no other option other than to diversify their economies in order to sustain state budgets.
“This is clearly the rational course for them to follow, but there are inherent challenges in the form of insufficient economic and legal institutions, infrastructure, and human capital,” said Espen Erlingsen, head of upstream research at Rystad Energy.
“Structural changes will be crucial to stabilise petroleum-reliant economies and avoid geopolitical instability as the global energy systems shift onto a sustainable pathway.”
Taking Saudi Arabia as an example, Rystad showed that about half of the government’s take is at risk through 2050. Tax income from oil and gas made up 27 percent of the country’s gross domestic product (GDP) in 2019.
On the other hand, Rystad suggested that, even with significant reductions in production due to the energy transition, some new developments and even some new discoveries will be required to meet demand.
“Investment in upstream projects is therefore still needed, even in the most aggressive energy transition scenario considered in this report,” the report concluded.
