National Oil Companies betting $1.2 trillion of public money on climate catastrophe

State-run oil companies plan to spend $1.2 trillion on oil and gas projects that won’t turn a profit if humanity manages to meet the International Energy Agency’s “net zero” climate change scenario, new research shows.

The massive sum reflects an increase in potentially unprofitable hydrocarbon spending by national oil companies, when compared to similar calculations made two years ago by the Natural Resource Governance Institute. NRGI’s updated analysis, Riskier Bets, Smaller Pockets: How National Oil Companies Are Spending Public Money Amid the Energy Transition, out today, finds that while many oil-producing countries plan to invest more on extraction, they have also become more indebted.

“This concurrence of rising debt and increased willingness to spend on fossil fuel expansion is a perfect storm for both climate and economic disaster,” said David Manley, one of the report’s authors. “Either these investments turn a profit, or we manage to halt warming fast enough to avoid catastrophic and irreversible impacts. It’s one or the other. Citizens in poor countries cannot afford even worse climate impacts, and their governments cannot afford to bail out state oil producers that make bets on risky fossil fuel projects.”

Even under climate change scenarios less stringent than “net zero,” vast amounts of public funds are still at risk, the authors found. In the IEA’s “announced pledges” scenario, in which demand for oil falls to 55 million barrels a day, $425 billion of state companies’ planned investment over the next decade will be unprofitable.

“These are huge sums of money that belong to citizens, often in countries where inequality and poverty persist,” said Suneeta Kaimal, president and CEO of NRGI. “Now more than ever governments should invest seriously in plans to diversify their economies away from dependence on oil and gas production. Yet over the last two years we’ve seen national oil companies double the riskiest portions of their portfolios with plans to invest in high-cost projects.”

In a second report published on Tuesday, Facing the Future: What National Oil Companies Say About the Energy Transition, NRGI reveals that only nine out of 21 NOCs analyzed have acknowledged the risks of the energy transition, with a mere four implementing transition risk assessments and five outlining concrete strategies to mitigate these risks. None of the analyzed NOCs have published “just transition plans” that would detail how they intend to support workers and communities affected by evolutions in the energy sector.

“While NOCs like Brazil’s Petrobras and Colombia’s Ecopetrol have some good practices that others could follow, most NOCs we analyzed are covered in red flags,” said Andrea Furnaro, one of the report’s authors. “National oil companies must urgently and publicly acknowledge the risks, conduct thorough risk assessments, and implement effective mitigation plans to protect public capital at risk in the context of the energy transition. Transition risk disclosure is essential to enable citizens, investors and policymakers to scrutinize NOCs’ decisions.”

NRGI’s reports, published two days before the COP28 climate conference in Dubai, build on recent findings by UNEP and climate think tanks that governments in oil-producing countries and NOCs are investing far too much public revenue in oil and gas. This overinvestment will result in the production of more than double the amount of fossil fuels than would be consistent to limiting global warming to 1.5 degrees above pre-industrial levels.

“Even as governments gather to take stock of global progress this week, they still gravely underestimate the role that national oil companies must play in reaching the Paris Agreement’s objectives,” said NRGI’s Patrick Heller, an author of Riskier Bets, Smaller Pockets. “Our research shows how urgent it is for governments at COP28 to face up to the reality of national oil company investment plans. They should send a strong signal that the future demands a shift away from oil and gas that is rapid as well as equitable, including with concrete commitments to support transition in low-income countries.”