• Expecting a slow energy transition away from fossil fuels, national oil companies (NOCs) will likely invest USD 1.8 trillion in upstream oil and gas developments and expansions over the next 10 years.
• But $425 billion—a quarter of the NOCs’ planned investment—will be unprofitable if oil demand falls to 55 million barrels a day, in line with the International Energy Agency’s Announced Pledges Scenario. This is the highest risk portion of the portfolio and has doubled since the Russian invasion of Ukraine.
• NOCs will only profit from around $1.2 trillion of investment (71 percent of the total NOC investment) if humanity fails to contain global temperature rise to below 1.5°C, pushing the world toward climate catastrophe.
• While NOCs are making riskier bets, their debt is rising in some regions. Between 2011 and 2022, the average debt to total asset value of NOCs in sub-Saharan Africa, the Middle East and North Africa, and Latin America rose by a third.
• Governments’ financial pockets are shrinking. Between 2011 and 2021, the average government debt as a proportion of gross domestic product doubled.
• Yet many NOCs have not publicly acknowledged the growing risks of the energy transition. They and their governments must examine how they can generate sufficient revenue and energy for citizens without making even riskier bets with public money.

As the energy transition accelerates and government finances deteriorate national oil companies (NOCs) are gambling their countries’ wealth.

As NOCs, along with the rest of the oil industry, expect oil demand to stay high, they will likely invest USD 1.8 trillion in new upstream developments and project expansions over the next 10 years. However, $425 billion of this investment is unlikely to be profitable if global oil demand falls from the current 100 million barrels a day to 55 million barrels a day by 2050, in line with the International Energy Agency’s Announced Pledges Scenario. This is twice the investment NOCs were planning in 2021 before the Russian invasion of Ukraine. In addition, NOCs will likely invest $1.2 trillion in projects that will only break even if humanity fails to keep the global rise in temperatures below 1.5°C, pushing the world toward climate catastrophe.

Even if demand persists, the future is not business-as-usual for NOCs and their governments. Continued burning of fossil fuels will result in further climate damage to nature, societies and economies: a 13 to 29 percent fall in gross domestic product (GDP) for non- OECD countries by mid-century. Nine out of the ten most affected economies have NOCs. Governments should examine how this radically increases uncertainty and challenges the roles of NOCs and the public capital they are investing.

NOCs in China, Saudi Arabia, Russia and Brazil are set to spend the most. In particular, Chinese and other Asia-Pacific NOCs are increasing their investments significantly compared to their plans two years ago. Conversely, NOCs in Latin America, Eurasia and sub-Saharan Africa are reducing their investments.

NOCs in Sub-Saharan Africa, Asia-Pacific and Eurasia are generally the most exposed to risk. A third of all NOCs—including Indonesia’s Pertamina, Nigeria’s NNPC and Mexico’s Pemex—are due to invest more than a third of their investment pipeline in projects that would not break even under the IEA’s Announced Pledges Scenario (APS). A scenario in which governments meet their climate pledges to reduce oil and gas demand. Some smaller NOCs are highly exposed: four-fifths of Uganda’s UNOC and Cameroon’s SNH investment pipelines fail to break even in the APS.

NOC debt is rising in some regions. Between 2011 and 2022, the average debt to total asset value of NOCs in sub-Saharan Africa, the Middle East and North Africa, and Latin America rose by a third.

NOCs’ investment in risky assets represents a large portion of state budgets—with significant consequences for governments’ ability to fund public services in the future. UNOC and NNPC are due to invest an amount equivalent to more than 30 percent of their governments’ annual expenditure in projects that do not break even in the APS. QatarEnergy and Mozambique’s ENH are also betting large amounts relative to their governments’ budgets, but their focus on gas may reduce their risk exposure.

Value of all NOCs’ aggregate “investment pipelines” measured in 2021 and 2023, by scenarios in which they break even

• As the world moves toward a future beyond oil and gas, petroleum assets will change hands, with different kinds of companies replacing others.

• Since 2014, around USD 88 billion in assets have moved from publicly listed to private companies. The roles of sub-Saharan African and Latin American companies in their home countries have expanded.

• Globally, the role of national oil companies (NOCs) is growing. NOCs have acquired around $24 billion in assets from non-NOCs since 2014.

• The growing role of private and local companies and NOCs potentially gives producer countries greater control over their petroleum sectors, including the pace of an eventual phaseout.

• However, these companies often have less capacity and fewer transparency, environmental, social and governance commitments than publicly listed international companies. This increases the risk that these companies’ operations will negatively impact the environment and communities, and that they will be unable to pay for decommissioning when production ends.

• Many assets that sub-Saharan African and Latin American NOCs have acquired appear vulnerable to energy transition risks.

• Governments should exercise approval rights over asset transfers to ensure buyers have requisite capacity to operate with high standards. They should ensure transparency to allow host communities and the public to better understand transfer impacts and how the government and/or companies will manage them, and strengthen regulations to address key issues arising from transfers including emissions management and reporting, and decommissioning funding.
• Governments should require NOCs to make adequate disclosures about their acquisitions to ensure NOCs manage risks to the public purse.

As the world journeys towards a future beyond oil and gas, oil and gas assets will continue to change hands, with different kinds of companies filling the gap left behind by others. 

There is growing concern that, as international oil companies (IOCs) face pressure to reduce emissions, they are selling upstream petroleum assets, in part, to shift emissions off their books and ostensibly achieve their decarbonization goals. On balance and at a global level, assets are moving from publicly listed to private companies and from companies with higher environmental commitments to those with weaker commitments. The result, according to some evidence, is that these sales do not simply transfer emissions to new parties but may increase them.

At the same time, some national oil companies (NOCs) seek to acquire assets left behind by the departure of IOCs to avoid production decline and ensure domestic energy supply.

This briefing shows how asset transfer trends may differ by region and country, and therefore present different risks and raise different policy considerations for producer country governments. It focuses on the Global South countries and regions in which the Natural Resource Governance Institute (NRGI) works.

NRGI analyzed upstream petroleum asset transfers from 2014 to the first half of 2023, using Rystad data to identify trends globally, at the sub-Saharan African and Latin American regional level, and in NRGI’s countries of focus.

This analysis shows that petroleum assets worldwide have moved primarily from publicly listed to private companies during the period studied. Since the start of 2014, around USD 88 billion in assets have moved from publicly listed to private companies. Both sub-Saharan Africa and Latin America have seen net divestment by publicly listed companies. In sub-Saharan Africa, there has been a transfer of around $23 billion in assets from publicly listed to private companies since the start of 2014, while in Latin America, around $11 billion in assets has moved from publicly listed to private companies.

• Uganda’s planned oil refinery will have several benefits for the country, including for its security of fuel supply and balance of payments.
• The refinery could be reasonably profitable, generating an internal rate of return of 13 percent in a baseline scenario.
• The government is planning to take a 40 percent stake but may ultimately pay a higher price for this equity than it expects. Even if it borrows to cover its upfront contribution to costs, it will need to divert around $330 million in present value terms from the national budget for loan repayments in the 2030s.
• This price will increase if downside risks, such as cost overruns or lower global oil prices, materialize.
• The government can take several steps to increase interest from other investors, including by reducing the risk of cost overruns, ensuring deregulated product prices continue, and providing less risky forms of state support such as tax incentives. These should reduce the need for the government to take a large stake.

French supermajor Total and Chinese state oil company CNOOC are currently developing Uganda’s first oil project. As part of this, they are constructing the East Africa Crude Oil Pipeline, which will have the capacity to export 216,000 barrels per day (bpd) of oil. The government is also pursuing construction of a refinery that will process 60,000 bpd when built.

The refinery will have several benefits. It should address Uganda’s problem with fuel supply, with current import routes from Kenyan and Tanzanian ports having suffered several disruptions. Fewer petroleum product imports will reduce the country’s foreign exchange needs. The government hopes that the refinery will also stimulate the birth of a petrochemical industry and generate thousands of jobs.

The key question for the government now is when and how the planned refinery will go ahead, including in relation to its planned equity stake. The government canceled its agreement with the Albertine Graben Refinery Consortium (AGRC), the companies selected to construct and operate the refinery, in June 2023 after AGRC failed to secure sufficient financing within the agreed timeframe. The government has been planning to take an equity stake of up to 40 percent in the refinery through the Uganda National Oil Company (UNOC). But the challenges with AGRC could encourage the government to take an even larger stake to ensure the project proceeds.

There is limited clarity on the price that the government might ultimately pay for its equity stake. To provide further clarity and thereby inform government decision-making, this paper's authors have analyzed the refinery’s economics and the implications for the government stake.

The authors’ modeling suggests that the refinery could be reasonably profitable. With their baseline assumptions, it generates an internal rate of return (IRR) of 13 percent.

With a construction cost of $4.5 billion and assuming debt financing of 70 percent, a government stake of 40 percent requires the government to contribute around $540 million. This is equivalent to about $440 million in present value terms (assuming a real discount rate of 8 percent). Given budgetary constraints, the authors expect that the government will borrow this money to avoid this upfront cost.

But borrowing is not a silver bullet. While UNOC ultimately makes a profit over the lifetime of the refinery in the authors' baseline, the government needs to divert around $330 million in present value terms from the budget to contribute to loan repayments in the 2030s.

The price that the government ultimately pays for a 40 percent stake will be impacted by a range of factors and uncertainties that affect the profitability of refineries. The authors analyzed five factors that will affect the profitability of the Ugandan refinery: construction cost, feedstock volume, global oil price, product prices and regional exports.

The government will pay a very different price to what it expected even if only some of these downside risks materialize. Taking a large equity stake could therefore generate substantial challenges for Uganda.

Given that the refinery will have considerable benefits for Ugandans, the government may decide this is a risk worth taking, and a price worth paying. However, the government may not need to expose the country to this amount of risk. It is unclear whether the failure of AGRC to raise sufficient financing relates to the refinery’s profitability or other reasons, particularly given the refinery is profitable in the authors' baseline. If the government can establish and address the reasons for AGRC’s fundraising failure, other investors may still be willing and able to provide most, if not all, the investment.

In this paper the authors identify several steps that the government can take to increase interest from other investors and thereby reduce the risk that the refinery hinders rather than helps Uganda’s development.