Total global revenues from oil and gas taxes are set to approach the $1-trillion mark in 2021, but unlike in pre-COVID times, the world will never again see such high revenues from oil and gas, Rystad Energy said in an analysis on Wednesday.
Before the 2020 crisis, all the countries with oil and gas resources would typically receive a combined more than $1 trillion in oil and gas taxes. Last year, however, due to the lower production and low commodity prices, total government income from oil and gas taxes slumped to as low as $560 billion—a multi-year low, according to Rystad Energy’s estimates.
Thanks to higher oil prices, this year will be the last year in which governments’ revenues from oil and gas would come anywhere close to the $1-trillion mark, at $975 billion as estimated by the independent energy research firm.
Over the next years and decades, revenues will not reach that threshold ever again as the energy transition accelerates, Rystad Energy said.
From 2022 onwards, tax revenues will be limited to the low $800 billion range this decade. Then they are expected to tick 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,” Rystad Energy noted.
Unsurprisingly, the most to lose will be the countries that are highly dependent on tax revenues from oil and gas, including some of the largest OPEC producers such as Saudi Arabia, Iraq, Kuwait, Libya, and Algeria, according to the energy research firm.
“As the energy transition ramps up, countries highly dependent on tax revenue from the upstream industry may have no other option than to diversify their economy 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,” Espen Erlingsen, head of upstream research at Rystad Energy, said.
For the world’s top oil exporter, Saudi Arabia—whose total tax income from oil and gas made up 27 percent of gross domestic product (GDP) in 2019, about half of the government take is at risk towards 2050—according to Rystad Energy.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Rises After ‘Cataclysmic’ Boardroom Showdown
- Moody’s: Credit Risk Is Growing For Big Oil
- Activist Investor Wins Exxon Board Seats In Day Of Reckoning For Big Oil
Rystad based its faulty conclusions on the assumption of an acceleration of global energy transition. But the truth is that an acceleration of energy transition will mean more demand for natural gas as the transition wouldn’t succeed without major contributions from natural gas. Moreover, energy transition won’t affect the global demand for oil.
Therefore and contrary to Rystad’s conclusions, oil-producing countries of the world particularly the Arab Gulf producers will enjoy far bigger revenues from exports of oil and gas probably exceeding $2-$3 trillion for the following reasons:
1- The global oil demand for crude oil and natural gas is projected to hit estimated 114 million barrels a day (mbd) and 800 billion cubic metres (bcm) respectively by 2030.
2- National Oil Companies (NOCs) will be receiving the overwhelming share of the oil and gas export bonanza since they will virtually be the ones with reserves whilst the International Oil Companies (IOCs) will be very junior players as they won’t be able to replace their reserves because of resurgent resource nationalism.
3- The global economy will continue to run on oil and gas well into the future.
4- Global demand for oil and gas will continue to grow fast as a result of rising population from the current 7.9 billion to 9.7 billion by 2050 and growing global GDP expected to rise from $91 trillion now to $266 trillion also by 2050.
5- As a result we could expect Brent crude oil price to have reached a minimum of $110-$120 a barrel with natural gas prices matching the rise in oil prices percentagewise.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London