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State-owned oil companies are on course to invest $400 billion in oil and gas projects that could only break even if the world exceeds the Paris Agreement targets, a think tank has said in a new report.
“State oil companies’ investments could pay off, or they could pave the way for economic crises across the emerging and developing world, and necessitate future bailouts that cost the public,” the Natural Resource Governance Institute said. “Some oil-dependent governments in Africa, Latin America and Eurasia are making particularly risky bets with public money.”
“Either the world does what’s necessary to limit global warming, or national oil companies can profit from these investments. Both are not possible,” the authors of the report also said.
The report recognizes that state-owned oil companies don’t have much incentive to reduce their investments in new oil and gas production given their governments’ reliance on oil revenues. Middle Eastern OPEC members come to mind, as well as Nigeria and Angola in Africa. In Latin America, Brazil is staking a claim as one of the fastest-growing oil production regions, enjoying strong demand for its low-cost oil both at home and abroad.
That is bad enough for the Paris Agreement—but what might be worse is that more investments may be planned now that oil prices are recovering, in part because of an anticipated deficit in supply coming as soon as this year. Oil prices have already rebounded to pre-pandemic levels despite the continued depression in demand. And with spending slashed across the industry—including at state-owned companies—there is more upward pressure on prices right now.
It is set to continue beyond the immediate term as well, as producers are likely to be reluctant to start making bigger bets on new production so soon after the devastating pandemic. This would likely accelerate their collision course with Paris Agreement targets.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.