A new report has identified huge economic losses that may be encountered by the Nigerian National Petroleum Corporation (NNPC), and other state-owned national oil companies (NOCs) if ongoing global energy transition moves rapidly.

The report observed that the Corporation is signing contracts for key capital projects in the petroleum sector, just as energy transition is expected to affect oil and gas in quite different ways, although it presents a risk to both fuels.
Azerbaijan’s SOCAR and Nigeria’s NNPC were of particular concern, according to the Natural Resource Governance Institute (NRGI).

About half of NNPC’s investments in upcoming oil projects may turn into a loss, especially if the capital expenditure (capex) on the projects fails to break even at a long-term price of $40, the report noted

In the report called, Risky Bet, the NRGI expressed deep concern that about half of NNPC’s investments in upcoming oil projects.

Other countries where investments should be reviewed include Algeria, China, Russia, India, Mozambique, Venezuela, Colombia, and Suriname, the report noted.

NRGI revealed that national oil companies (NOCs) risk squandering $400 billion on expensive oil and gas projects over the next decade that may only break even if the world fails to meet the Paris climate goals, the non-governmental organisation said on Tuesday.

It estimated that NOCs could invest $1.9 trillion over the next 10 years, meaning one-fifth of these investments would become unviable unless the oil price stayed above $40 a barrel.

Major oil companies like BP, Total and Royal Dutch Shell have already progressively lowered their long term price estimates, now in the $50-60 a barrel range, while some analysts see even lower levels depending on the energy transition scenario.

The result could worsen inequalities, as funds that could have been better spent on healthcare, education and diversifying the economy might instead create an economic crisis. Many of these NOCs are based in countries where 280 million people live below the poverty line.

It said: “State oil companies’ expenditures are a highly uncertain gamble,” David Manley, senior economic analyst at NRGI and report co-author, said.

“They 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 dearly.”

The report said producers in the Middle East, such as Saudi Arabia, would be less-impacted, as their breakeven levels were much lower but African and Latin American countries would have more trouble.

A heavy debt burden is already an issue for Mexico’s Pemex as well as Angola’s Sonangol. Compounding the issue is the long held expansionist view at many NOCs, along with a lack of transparency. On average, just one dollar in every four dollars of revenue is returned to government coffers, the report said.