Revenue Hit Coming For Oil And Gas Producing Countries

The world is making the move to clean energy. At every level of the global economy, from small businesses to governments, leaders are constantly evaluating the costs and benefits of investing in the shift to renewable energy. For oil-producing nations, it’s a decision they can’t wait long to make. 

Every country on earth faces vastly different challenges in their energy challenges. Whether a nation has admitted to ambitious goals like carbon neutrality or emission reductions or they’re forced to rely on fossil fuels to bolster their developing economy, the clock is ticking. Even countries who, for the lack of a better description, find themselves swimming in oil need to understand that green energy will destroy the oil industry. That could happen sooner rather than later. 

Over the past few weeks, oil prices have finally rebounded to pre-pandemic levels. In 2020, a shocking decline in demand saw prices plummet, even going negative; it literally was costing money to have oil, with no one buying and nowhere to store it. That’s changed, and as economies around the globe inch closer to normal and adjust to new realities, fossil fuels have surged. 

That isn’t expected to last. A recent study found that some of the biggest oil and gas producing companies could face serious economic setbacks once the demand for fossil fuels falls. With renewables becoming more and more efficient and with public and private investment on the rise, these countries that rely almost entirely on oil could see trillions of dollars lost by 2040. 

The study found that in nations where oil isn’t the main source of revenue like the US and UK, governments could face a $13 budget shortfall by 2040. That’s striking, but it pales in comparison to a collection of counties deemed petrostates. These nations rely on oil and gas for the majority of their national revenue and include Iraq, which draws over 80% of its revenue from oil. On average, the forty countries that meet these criteria could face an average annual loss in revenue of 46%. Saudi Arabia, for example, would be out something like 40%. 

Still, the sooner these nations diversify their economies, the less of an impact the inevitable shift will have on their economy and citizens. When these countries invest in renewable energy like wind and solar, it has a double benefit in that it reduces the immediate demand for oil and subsequent pollution and increases investment in renewables in the longer-term. Of course, these nations need to evaluate the right timeline for their economies and their citizens, which means that many are playing a financial game of chicken to see who blinks first and pulls the plug on oil. 

On a smaller scale, businesses face the decision to invest early in renewables and to be prepared in the event of energy transition challenges. We’re working with companies from any number of industries to craft creative solutions that are cost and energy-efficient! Let’s see what we can do for you