After fossil fuels:a case study of MENA oil producers Filip Černoch čer noch (almail.muni.c2 Questionable future of the oil market • Peak oil and scarcity rents —► need to manage oil reserves to keep stable production and stable income —► heavy dependence on one commodity (oil) and its volatile price. VS • Peak oil demand and oil abundance on the market —> some share of oil may never be extracted —> higher competition on the oil markets, tightened incomes, uncertain future. Expected transition driven by decarbonization • Climate change mitigation (EVs, carbon pricing etc); local pollution; technology innovation. • Problem mainly for coal and oil (natural gas 'a bridge fuer). • Greenhouse gas emissions in the present estimates of global fossil fuel reserves about 3x greater than the global budget —► 1/3 of global oil, V2 of gas and over 4/5 of coal to remain unused from 2010 to 2050 to stay within 2°C target. • For the Middle East it means to exploit about 60% of their reserves of oil, 40% of gas. • Speed of the energy transition will determine the role of oil. • Oil still essential source of energy, but under growing pressure. IEA scenarios • Current Policy Scenario — oil demand is to increase over the next 3 decades, with Middle Eastern oil exports growing correspondingly. • 450 Scenarion — oil demand falling after 2020, Middle Eastern oil exports stable at 2020 level to 2040. Current policies scenario 450 scenario 5000 4000 3030 2000 1000 LLLL LULL 1990 2014 2020 2030 2040 1990 2014 2020 2030 2040 ■ [jI o b o I rj i I d s m a nd ' M i d d te t a st o i F ex po its Fossil-fuel import prices by scenario Real terms ($2015) 2015 New Policies Scenario Current Policies Scenario 450 Scenario 2020 2030 2040 2020 2030 2040 2020 2030 2040 IEA crude oil ($/barrel) 51 79 111 124 82 127 146 73 85 78 Natural gas (S/MBtu) United States 2.6 4.1 5.4 6.9 4.3 5.9 7.9 3.9 4.8 5.4 European union 7.0 7.1 10.3 11.5 7.3 11.1 13.0 6.9 9.4 9.9 China 9.7 9.2 11.6 12.1 9.5 12.5 13.9 8.6 10.4 10.5 Japan 103 9.6 11.9 12.4 9.9 13.0 14.4 9.0 10.8 10.9 Steam coal ($/tonne) OECD average 64 72 83 87 74 91 100 66 64 57 United States 51 55 58 60 56 61 64 53 52 49 European Union 57 63 74 77 65 80 88 58 57 51 Coastal China 72 78 86 89 79 92 98 73 72 67 Japan 59 66 77 80 68 84 92 61 59 53 Middle East forecasted oil revenues, IEA scenarios (real prices) USD billion 1990 2014 •Current Policies Scenario 2020 2030 4S0 Scenario 2040 High level of uncertainty 135 IPIRA icm IEIA IIEA Current Policies ll HS( Rivalry) lBP(base case) IIEA New Policies IBP(FT) I Wood Mac IIEA Sustainable Development lOil production (assuming 3% decline p.a) 1965 1980 1995 2010 2025 2040 Macroeconomics of the MENA region • For 5 regional oil exporters (Libya, Kuwait, Iraq, Oman, SA), more than 40% of GDP based on oil and oil-related government activities. • Four other (Quatar, Algeria, UAE, Bahrain) varies between 20-40%. • Main sources of manufacturing value-added are refinery, chemical and mining/extractive industries, construction. • In some MENA countries oil is the primary source of fiscal revenues. Non-oil fiscal revenues, however, often also relate to oil industry (Quatar — practically all investment income and the bulk of corporate income tax from Quatar Petroleum). • Oil makes more than 50% of total exports from MENA oil exporting countries. Limited economic diversification. GDP composition of MENA countries, 2016 ■ Oil ■Government ■ Other Oil and non-oil fiscal revenue in selected MENA countries, 2016 (% of general government revenue) ■ Oil revenue ■ No noil revenue Oil and non-oil exports in MENA countries, 2016 ■ Oil exports ■ Non-oil exports Note: Low shares of oil in exports from the UAE and Bahrain are because non-oil exports include a large share of re-exports. Public sector employment in selected MENA countries (% of total employment of nationals) 80% 60% 40' 20'' 0% I I I Morocco Israel Palestine Egypt Tunisia Qatar Saudi Kuwait Arabia High shares of public employment in usually protected jobs with high wages contributes to low labour productivity of MENA oil-exporting countries. Emphasized by imported cheap non-national labour (since 80s), reducing productivity also in private sector. That prevents its development to internationally competitive form. Labour productivity in selected oil-importing and oi exporting MENA countries 200 -Tunisia o —|raq OHNl^)l*lnl0^C0(I)OH^lrt5lnl0^la(IlQI^(N(rltfl/llC^fflmaH^^lfl^ln^0 a^cria^aiaicricriaiaiaicricTicivcrbcricricTia^mOTaoooooooooooaoooo H H H H H H H H H H H H H H ri H H rt H H ^ p| N fN (N IN PI N (N n H r< fj PI H Post tax energy subsidies in selected MENA countries, 2015 Changes in primary energy supply and GDP 270% ^ 240% o 210% 6 180% o 150% v 120% 5 90% CO o 60% * 30% 0% 250% 200% o 150% G ° 100% EU28 United States Russia Africa Asia (excluding India Middle East China China) ■■■■■■■■II A* A*