The project examined economic sustainability in countries whose revenue and foreign exchange earnings are dependent on the export of hydrocarbons.
Choices relating to resource depletion rates, domestic energy policy and economic diversification that are made now will have wide-ranging national and global impacts - yet there has been little opportunity for debate amongst oil-exporting policy makers on the subject. Given the likely balance of supply capacity and demand over the next few years, a slower rate of depletion by a number of countries would not reduce their revenues as much as would have been the case in times of global surplus capacity. A better understanding of the exporters' development options, risks, and concerns is therefore required.
The project's aim was to further debate about economic sustainability in 12 such countries (listed below) through research, simulations and discussions with industry and government decision-makers.
Our research took as its starting point the choice that oil and gas producing governments face over rates of depletion. High oil prices give some the freedom to consider whether it is in their long-term interests to expand production in the near future. Expansion is likely to increase their dependence on oil exports and hasten the time of declining production. Increased dependence may hinder efforts to diversify economies while excess foreign exchange merely accumulates financial assets, not necessarily creating jobs or stimulating the non-oil sector.
Initially, we drafted a paper entitled Resource Depletion, Dependence and Development: Can Theory Help?, which reviews existing literature on depletion policy and the 'resource curse'. Case studies were compiled on 11 of these countries*:
These case studies present simulated scenarios considering how long the hydrocarbon sector can continue to support the rest of the economy under various assumptions. Country experts were then asked to add their analysis in several country commentaries, using their knowledge of the country's current economic and energy policies and the political and governance capabilities for adjustment. Country Commentaries
This research demonstrated that no hydrocarbon-dependent economy can escape the eventual transition to lower tax and foreign exchange earnings from oil and gas due to a combination of domestic energy consumption and resource depletion. In April 2008, Chatham House held a two-day workshop with participants from the oil-exporting countries. The aim of this was to test the results of the simulation and discuss the ability of the countries concerned to manage this transition, given their particular political, development and resource contexts.
*Norway was included in the study but did not have its own case study due to the large body of research and information on depletion conducted by the Norwegian government and Statoil-Hydro.
The report Ending Dependence: Hard Choices for Oil-Exporting States is based on the conclusions of our research and workshop insights. It highlights the factors affecting decisions to expand production in the medium to long-term and examines the options available to exporters in tackling the sustainability question.
Further details on the model and assumptions used in the analysis
Project results were presented by John Mitchell and Paul Stevens at the New York Energy Forum, the Centre for Strategic and International Studies (CSIS) and the Massachusetts Institute of Technology (MIT) in the United States in September 2008. Presentation
They were also part of a presentation on The Dilemma of Oil Depletion by Glada Lahn at the 1st Yemen Energy Forum, organized by the Sheba Center for Strategic Studies in Sana'a, Yemen, 2-3 June 2009.
Overall, the study highlighted an opportunity for governments facing oil depletion and dependence to make or reform energy policy in a way that maximises the potential for oil and gas export while also stimulating the non-hydrocarbon economy and reducing carbon emissions. Subject to funding, a follow-up project will examine the potential for this approach in several contexts.
For more information and a full project proposal, please contact the project organizers:
We would like to thank the Asian Development Bank, the Norwegian Ministry of Petroleum and Energy and BP for funding this project.