Skip to main content
  • News
  • Events
  • Blog
  • Search

Natural Resource Governance Institute

  • Topics
    Beneficial ownership
    Economic diversification
    Mandatory payment disclosure
    Revenue sharing
    Civic space
    Energy transition
    Measurement of environmental and social impacts
    Sovereign wealth funds
    Commodity prices
    Gender
    Measurement of governance
    State-owned enterprises
    Contract transparency and monitoring
    Global initiatives
    Open data
    Subnational governance
    Coronavirus
    Legislation and regulation
    Revenue management
    Tax policy and revenue collection
    Corruption
    Licensing and negotiation
  • Approach
    • Stakeholders
      • Civil society actors
      • Government officials
      • Journalists and media
      • Parliaments and political parties
      • Private sector
    • Natural Resource Charter
    • Regional knowledge hubs
  • Countries
    NRGI Priority Countries
    Colombia
    Guinea
    Nigeria
    Tanzania
    Dem. Rep. of Congo
    Mexico
    Peru
    Tunisia
    Ghana
    Mongolia
    Senegal
    Uganda
    OTHER COUNTRIES
  • Learning
    • Training
      • Residential training courses
        • Executive
        • Anglophone Africa
        • Francophone Africa
        • Asia-Pacific
        • Eurasia
        • Latin America
        • Middle East and North Africa
      • Online training courses
        • Advanced
        • Negotiating Contracts
        • Massive open online course (MOOC)
        • Interactive course: Petronia
      • Trainers' modules
        • (empty)
    • Primers
    • Glossary
  • Analysis & Tools
    • Publications
    • Tools
    • Economic models
  • About Us
    • What we do
      • 2020-2025 Strategy
      • Country prioritization
    • NRGI impact
    • Board of Directors
    • Emeritus Board Members
    • Advisory Council
    • Leadership team
    • Experts and staff
    • Careers and opportunities
    • Grant-making
    • Financials
    • Privacy policy
    • Contact us
  • News
  • Events
  • Blog

You are here

  1. Home
  2. Blog

Oil Companies Face Stranded Assets, But Producer Countries Have It Worse

27 January 2017
Author
David Manley
Topics
Commodity pricesEconomic diversificationGlobal initiativesState-owned enterprises
Stakeholders
Government officialsJournalists and mediaPrivate sector
Precepts
P1 P6 P10 What are Natural Resource Charter precepts?
Social Sharing

On Wednesday, BP chief economist Spencer Dale warned of a long-term and permanent slump in oil demand as the world shifts away from fossil fuel use. The Financial Times quotes Dale as saying: “I think it is increasingly likely that there will be technically recoverable oil reserves which will never be extracted and if I was the owner of one of those companies which owned that oil I would have every incentive to make sure it wasn’t mine [left in the ground].”

The NGO Carbon Tracker, as part of its “stranded assets” campaign, has issued similar warnings for some time. But Dale explained that while oil companies such as BP have the ability to “shift capital in pursuit of the most attractive resources … producer countries and their national oil companies have less flexibility.” Campaigners highlight the long-term risks investors face in investing in the oil industry, but it is countries dependent on extraction who may well be left with the greatest exposure.

In the working paper “Stranded Nations? The Climate Policy Implications for Fossil Fuel-Rich Developing Countries,” Jim Cust, Giorgia Cecchinato and I explain why many of these developing nations are between a rock and a hard place. If the world does not switch to low carbon consumption, these countries face extreme weather-related problems caused by global warming. If the world embraces clean energy, they face a dramatic depreciation in the value of their fossil fuel wealth.

Our research confirms BP’s warning. Many developing countries have abundant fossil fuel reserves but extract fossil fuels at relatively slow rates. Therefore much of their hydrocarbon wealth will remain stranded underground under a scenario in which demand peaks and then declines in the 2040s, as BP predicts.

Left stranded

Most fossil fuel-rich countries will take at least 45 years to liquidate their fossil fuel wealth unless they can increase production rates. (weighted reserves-to-production, years)

Source: David Manley, James Cust and Giorgia Cecchinato. “Stranded Nations? The Climate Policy Implications for Fossil Fuel-Rich Developing Countries”. Oxford Centre for the Analysis of Resource-Rich Economies Policy Paper 34 (2016).

What can fossil fuel-dependent countries do? First, officials must recognize the dilemma they face and plan accordingly. Many of the good governance principles espoused in the Natural Resource Charter remain relevant. It is the urgency that has changed.

The ultimate solution for these countries is to diversify. Governments of countries with nascent fossil fuel industries—such as offshore gas developer Tanzania—must ask hard questions about how many human and public resources to invest in an industry that might yield minimal returns. Given the uncertain future, those committed to helping these countries govern their resources must also re-calibrate. Our working paper and efforts by others (here, here and here) are only the beginning.

David Manley is a senior economic analyst at the Natural Resource Governance Institute.

Related content

Natural Resource Charter Benchmarking Framework: 170 Crucial Questions for Resource-Rich Countries

Robert PitmanDavid Manley
17 October 2016

NRGI’s Top 10 Blog Posts in 2016

13 December 2016

May 2015 Letter from the President

14 May 2015

13th Latin American Forum on Extractive Industries

Event type: 
Conference
Monday, March 6, 2017 - 08:30 to Tuesday, March 7, 2017 - 17:30
Bogotá, Colombia

Open Government Partnership Global Summit 2016

Event type: 
Conference
Monday, December 5, 2016 - 08:00 to Friday, December 9, 2016 - 17:00
Paris, France
Helping people to realize the benefits of their countries’ endowments of oil, gas and minerals.
Follow on Facebook Follow on Twitter Subscribe to Updates
  • Topics
    Beneficial ownership
    Civic space
    Commodity prices
    Contract transparency and monitoring
    Coronavirus
    Corruption
    Economic diversification
    Energy transition
    Gender
    Global initiatives
    Legislation and regulation
    Licensing and negotiation
    Mandatory payment disclosure
    Measurement of environmental and social impacts
    Measurement of governance
    Open data
    Revenue management
    Revenue sharing
    Sovereign wealth funds
    State-owned enterprises
    Subnational governance
    Tax policy and revenue collection
  • Approach
    • Stakeholders
    • Natural Resource Charter
    • Regional knowledge hubs
  • Priority
    Countries
    • Colombia
    • Dem. Rep. of Congo
    • Ghana
    • Guinea
    • Mexico
    • Mongolia
    • Nigeria
    • Peru
    • Senegal
    • Tanzania
    • Tunisia
    • Uganda
  • Learning
    • Training
    • Primers
  • Analysis & Tools
    • Publications
    • Tools
    • Economic models
  • About Us
    • What we do
    • NRGI impact
    • Board of Directors
    • Emeritus Board Members
    • Advisory Council
    • Leadership team
    • Experts and staff
    • Careers and opportunities
    • Grant-making
    • Financials
    • Privacy policy
    • Contact us
  • News
  • Blog
  • Events
  • Search