Digitalisation, the shale revolution, and an increasing consciousness of climate change and sustainability have created much volatility in the hydrocarbon sectors in recent decades. For many of the world’s major oil and gas exporters, a renewed focus on reform and economic diversification will be key for further economic and social development, says the International Energy Agency (IEA), in its Outlook for Producer Economies report. The producer economies IEA identified for the report are Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates, and Venezuela.
With uncertainties in pricing and long-term demand throwing up a range of possible futures for the hydrocarbon industry, the report recommends that producer economies develop more diversified and dynamic economies. Major swings in hydrocarbon revenue can be hugely destabilising; economic reform will improve prospects across all producer countries by reducing the risks and impact of a heavy dependence on oil and gas revenue. From a global standpoint, diversification will also contribute to global sustainable development goals.
However, any reform will rely on a well-functioning energy sector, whereby maintaining investment levels and large, low-cost resource bases are crucial. Among the producer economies analysed, Iraq, Nigeria, and Venezuela may face major hurdles in attracting enough financing for their upstream sectors.
The report outlined six ways in which the energy sector can drive the reform agenda:
- Capturing more domestic value from hydrocarbons: By investing further downstream in refining and petrochemicals.
- Using natural gas strategically to support diversification goals: While gas is less lucrative than oil, it can underpin an industrial strategy in a way that oil cannot.
- Tapping the huge, under-utilised potential of low-carbon energy: There is huge scope to increase cost-effective deployment of renewables in all economies and nuclear power in some.
- Phasing out subsidised consumption of fossil fuels: Pricing reform, combined with advancements in energy efficiency, can reduce wasteful consumption while retaining an economic advantage.
- Ensuring adequate investment in the upstream sector: The ability to maintain oil and gas revenues at reasonable levels provides an important element of stability for the economy.
- Supporting advanced energy technologies: Many producers are global leaders that can support innovation and reduce the environmental footprint of oil and gas supply.