What do changing energy dynamics mean for the world’s largest oil and gas exporters? A new special report, part of the IEA’s flagship World Energy Outlook series, focuses on six key producers, Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates & Venezuela, and examines the pressures that they face in different price and policy scenarios to 2040. The drive for energy efficiency and the long-term response to climate change, in addition to technology innovation and the shale revolution, all point to sustained pressure on economies that rely heavily on revenue from oil and gas.

1. © OECD/IEA 2018
Outlook for
Producer Economies
Webinar, 5 November 2018
Tim Gould, Ali Al-Saffar

2. © OECD/IEA 2018
Context
 Now more than ever, fundamental changes to the development model in key oil and
gas exporters countries look inevitable
 Shale revolution
 Fuel efficiency & fuel switching, including electric vehicles
 Response to climate change & air pollution
 Producers are a very diverse group; this report focuses on six:
Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates & Venezuela
 Recent high prices are a double-edged sword; higher revenues provide the means to
reform, but reduce the urgency & accelerate structural changes in demand
 Success – or failure – of these reform efforts has wide-ranging impacts for energy
markets, energy security & pathways to reach environmental goals

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A rollercoaster ride
Net income from oil and gas in six selected producer economies
The fall in oil prices that started in 2014 brought into sharp relief
some risks associated with high dependence on hydrocarbon revenues
200
400
600
800
1 000
1 200
2010 2011 2012 2013 2014 2015 2016 2017
Billiondollars(2017)
Natural gas
Oil
Net income:
Venezuela
Nigeria
United Arab
Emirates
Iraq
Saudi Arabia
Russia

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Job creation and productivity
Labour productivity in selected countries in the Middle East and North Africa
Declines in labour productivity in producer economies
underpin the priority in reform programmes to boost private sector activity
50
100
150
200
250
300
1970 1980 1990 2000 2010 2018
Index(1970=100)
Egypt
Tunisia
Morocco
Algeria
Saudi Arabia
Iraq
United Arab Emirates
Qatar

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Uncertainty over future hydrocarbon revenues
High oil price
Low oil price
500
1 000
1 500
2 000
2 500
2036-40
Dollars(2017)
2031-352026-302021-252016-202010-15
Per capita net income from oil and gas
Demographic pressures keep the imperative for reform strong even with a higher oil price
The arguments for change are inescapable in case of lower prices and/or faster transitions

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Strategic responses
 The reform agenda needs to be much wider than energy:
 Improved conditions for private sector growth
 Ways to limit the disruptive effects of the commodity cycle
 Reforms to financial and labour markets
 But the prospects also depend on a well-functioning energy sector:
 Capturing more value from hydrocarbons, e.g. via petrochemicals

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The search for more value at home
Changes in crude oil and NGLs supply and demand in the Middle East
Moving further down the value chain is a central part of many Middle East
diversification strategies, squeezing the additional crude available for export
1 2 3 4 5 6 7
Additional supply
(2017-40)
Additional consumption
(2017-40)
mb/d
Crude and condensateOther NGLs
Refinery
Petrochemical
feedstock
Reduction in
direct crude burn
Additional crude
exports

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Strategic responses
 The reform agenda needs to be much wider than energy:
 Improved conditions for private sector growth
 Ways to limit the disruptive effects of the commodity cycle
 Reforms to financial and labour markets
 But the prospects also depend on a well-functioning energy sector:
 Capturing more value from hydrocarbons, e.g. via petrochemicals
 Using natural gas as a way to support diversification
 Pursuing cost-effective deployment of low-carbon energy

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The Middle East’s solar opportunity
Solar PV could play a very cost-effective role in meeting growing power demand,
especially for cooling, across the Middle East
30
60
90
120
150
2015 2020 2025 2030 2035 2040
DollarsperMWhExisting oil-fired generation at $40/barrel versus unsubsidised new solar PV in the Middle East
New solar PV
Existing oil-fired capacity at $40/barrel

10. © OECD/IEA 2018
Strategic responses
 The reform agenda needs to be much wider than energy:
 Improved conditions for private sector growth
 Ways to limit the disruptive effects of the commodity cycle
 Reforms to financial and labour markets
 But the prospects also depend on a well-functioning energy sector:
 Capturing more value from hydrocarbons, e.g. via petrochemicals
 Using natural gas as a way to support diversification
 Pursuing cost-effective deployment of low-carbon energy
 Phasing out subsidies that encourage wasteful consumption
 Ensuring adequate investment in the upstream
 Developing cleaner and more efficient energy technologies

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Building on low-cost resources
Finding and development costs of oil produced in high oil price case, 2017-2040
Adequate upstream investment, technology innovation and some of the lowest-cost
resources can provide a solid platform for a more diversified economy
10
20
30
40
50
60
0 100 200 300 400 500 600
billion barrels
Dollarsperbarrel(2017)
Rest of world
Producer
economies
650

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Conclusions
 A changing energy system is posing critical questions for countries heavily
dependent on oil & gas revenue
 The reform process will be complex and challenging, but failure to take action would
compound the hazards facing producer economies and global energy markets
 The process of change must be wider than energy; but it relies on a well-functioning
energy sector as a source of revenue and comparative advantage
 Successful reform would open up a broader range of strategic options for producers,
as well as new opportunities for engagement on a range of energy issues

13. © OECD/IEA 2018
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