International Energy Agency

Outlook for Producer Economies

Critical questions for the world’s largest oil and gas producers

"At more than any other point in recent history, fundamental changes to the development model of resource-rich countries look unavoidable"
Dr Fatih Birol, Executive Director, IEA

The drive for energy efficiency and the long-term response to climate change, in addition to technology innovation and the shale revolution in the United States, are all pointing to sustained pressure on economies that rely heavily on revenue from oil and gas.

Outlook for Producer Economies focuses on what these changes could mean across six key countries: Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates & Venezuela.

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Key Findings

A revenue rollercoaster ride

The fall in oil prices that started in 2014 brought into sharp relief some risks associated with high dependence on hydrocarbon revenues - the net income available from oil and gas has fallen by between 40% (in the case of Iraq) and 70% (in the case of Venezuela), with wide-ranging consequences for economic performance.

	Venezuela	Nigeria	United Arab Emirates	Iraq	Saudi Arabia	Russia
2010	48.5	56.4	74.6	55.3	214	317.9
2011	72.9	82.1	115.4	86.8	338.5	463
2012	67.6	81.8	119.8	94.3	346	466.4
2013	64	69.8	114.2	94.7	318.3	451.4
2014	56.3	69.1	109.6	94.9	286.3	389.8
2015	20.6	31.1	59.1	58.5	139.2	170.2
2016	12.6	19.4	47.1	50.4	120	121.7
2017	15.7	28.8	59.8	67.1	152.7	179.4
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... with major impacts on government spending

Major swings in hydrocarbon revenue can be disruptive if finances and economies are not resilient.

The volatility of revenue can result in pro-cyclical spending. The upside of a rise in expenditure in the boom years is followed by an abrupt contraction when prices fall, with damaging consequences for the broader economy.

	Current expenditure	Capital expenditure	Oil and gas net income
2010	60.4	23.1	55.4
2011	66.6	30.1	86.8
2012	74.6	40.5	94.3
2013	83	55	94.7
2014	104.8	44.9	94.9
2015	80	45	58.5
2016	80.1	25.7	50.4
2017	75.2	25.5	67.1
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There are a range of possible futures

There are multiple uncertainties affecting the outlook for oil and gas and the revenue flows that sustain producer economies, not only because of fluctuating prices but also because of questions concerning longterm demand. A series of scenarios points to a range of possible futures for producer economies.

The New Policies Scenario (NPS) provides a measured assessment of where today’s policy frameworks and ambitions, together with the continued evolution of known technologies, could take the energy sector in the period to 2040. Under the NPS, equilibrium prices for oil and natural gas rise gradually and though the pace of oil demand growth slows markedly, there is no peak in global consumption.

In comparison, under the Low Oil Price Case (LOP) the oil price settles in a range between $60-70/barrel. In terms of demand, the LOP assumes a more rapid uptake of efficiency measures and fuel-switching opportunities than in the NPS, notably for electric vehicles.

Finally, the Sustainable Development Scenario (SDS) stress tests the future of producer economies in a different way. Prices are low in this scenario, but volumes are also hit as oil demand peaks in the near term and then declines to around 70 mb/d by 2040, while natural gas consumption rises by only one-quarter the amount projected in the New Policies Scenario.

Looking at projected income from oil and gas to 2040 starkly highlights the difference in these three possible futures.

Net income from oil and gas, total (left) and per capita (right) 
	NPSnet	LOPnet	SDSnet	Historical
2010-15	0.95	0.95	0.95	0.95
2016-20	0.6	0.55	0.58	
2021-25	0.9	0.7	0.8	
2026-30	1	0.8	0.85	
2031-35	1.2	0.9	0.8	
2036-40	1.35	0.9	0.7	
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	NPScap	LOPcap	SDScap	Historical
2010-15	2.3	2.3	2.3	2.3
2016-20	1.36	1.31	1.34	
2021-25	1.85	1.42	1.61	
2026-30	2.01	1.42	1.54	
2031-35	2.1	1.45	1.37	
2036-40	2.2	1.48	1.15	
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Standing still is not an option

So what can producer economies do to prepare for this range of possible futures?

A central task is to develop more diversified and dynamic economies that are less dependent on oil and gas revenue. The tendency to recycle these revenues into relatively unproductive jobs on the public payroll helps to explain why labour productivity in major producer economies in the Middle East and North Africa (MENA) has fallen below that of their peers, in some cases even lower than levels in 1970.

	Tunisia	Egypt	Morocco	Algeria	Saudi Arabia	Iraq	United Arab Emirates	Qatar	Kuwait
1970	100	100	100	100	100	100	100	100	100
1971	107.5711382	103.5929655	100.0203256	88.35195587	99.19292093	102.9392252	95.93240996	113.8783236	100.8347246
1972	119.7975914	108.4282306	99.97837004	106.269094	95.55919832	96.11194052	91.22149778	117.5075353	99.91360188
1973	116.5033064	100.4289648	105.4127899	109.6184211	99.4235852	108.8180266	86.68546296	127.5692723	89.17075334
1974	122.4931319	101.3985907	105.4842955	112.7854286	114.124069	111.1459155	93.87842699	107.2918885	74.15950114
1975	139.8182015	105.525607	107.0655221	113.4613684	105.3343415	125.6801654	79.92825731	103.1442457	62.89215946
1976	143.2098765	114.8134354	103.8541128	114.4826852	99.40315373	146.626047	86.2714403	104.9219589	60.09316027
1977	144.0928428	129.7951357	108.6301941	125.1253123	107.9987803	146.0494222	88.86994412	89.15650985	52.46428783
1978	148.9537766	137.8804379	103.15983	118.6751578	107.2552332	167.3870793	76.12868924	92.6901158	51.03118641
1979	154.2611489	150.0088151	105.5387972	119.1966234	104.4314638	199.6028751	83.37249757	90.26543364	52.59895711
1980	161.4782589	137.7640268	108.3908267	116.4677424	107.9495171	189.3224804	86.66406814	88.6881647	38.41541124
1981	165.4540781	159.1634951	116.9434576	114.906923	101.023375	150.4767543	87.2489831	68.46646662	29.2596056
1982	160.1966029	164.5115213	109.3552005	115.0230962	103.7847813	144.8947232	76.92795895	49.66955876	24.25752036
1983	164.2461912	169.1419142	113.6447472	115.686686	89.51540841	128.461283	70.20284108	39.96617577	24.57949639
1984	165.4020292	183.0616491	116.5421688	118.0253226	80.5074256	125.0474223	70.32609674	34.23456177	24.30064536
1985	170.0480403	196.169336	113.8609505	120.1438203	67.04790491	119.5146013	64.71993011	29.7041374	21.8495438
1986	163.0090017	201.9600822	107.2894149	115.1617336	60.15498435	114.8462163	49.30299679	24.39773223	22.24087114
1987	169.3120074	200.4181096	117.5008446	110.847944	65.80822571	114.6935618	47.7835435	24.47682079	20.0497448
1988	165.3294909	205.3215091	113.36022	104.9763971	63.00094878	87.8374174	44.61947598	24.39912216	19.50556898
1989	167.4147491	202.23504	113.7439778	105.0789173	65.49413006	77.75188196	46.17683904	24.18088591	19.7231819
1990	176.3544188	202.1357897	118.3955826	100.661973	69.19439123	74.53342648	48.42107067	23.68854364	14.86104704
1991	178.5466743	195.2392125	116.7389729	96.23594376	73.22525986	28.5610839	46.30636933	22.66503076	8.933477327
1992	188.1790178	196.9890609	134.8230007	95.49270628	73.06134399	37.41678693	44.66412851	24.25488613	17.09547278
1993	185.6707709	200.6275956	136.9593121	92.11291423	72.32693884	36.325509	41.79780416	22.96397697	24.5527375
1994	186.6847603	203.8238696	127.9819024	89.30024313	72.700998	31.91766025	41.96670855	23.44870149	28.15513592
1995	185.7569964	207.3772777	144.1973424	87.92543198	73.67330404	27.69376697	40.50630175	23.97348016	28.8619584
1996	193.6079723	208.0710345	131.8822321	88.20004157	74.09864924	31.47395658	41.43185662	25.090427	27.00930545
1997	199.1714633	206.9457911	141.5776435	86.25667553	73.96658753	28.75807892	42.19586506	27.7934305	26.16633193
1998	196.7562218	214.2527582	136.6628369	87.96108121	74.95277541	32.38007462	40.02786271	29.44168074	26.57996101
1999	196.3165905	220.1722235	142.1396811	89.52108518	73.59130819	33.75243735	38.98157292	29.23654542	26.8852452
2000	199.4615266	227.2479074	145.8916034	90.49556259	76.09183445	35.32931529	41.18495465	31.64179167	28.83336716
2001	202.8323768	228.5351308	143.276728	88.16631046	73.93761404	37.37579943	39.19032017	32.66338008	28.97395453
2002	201.7242807	235.8493191	143.4712981	89.01516036	70.58461638	38.83899425	37.51672441	32.73240943	27.68779943
2003	205.6210452	250.3316906	138.9741425	98.50714923	74.41355288	30.86358782	38.31903029	30.43622451	30.48822769
2004	225.2046343	247.250478	138.9650246	88.0614897	73.95751475	45.99397796	39.31545139	30.70495925	31.14992997
2005	228.4483532	253.304017	144.9670193	90.40743928	76.05772561	42.3562848	37.34052343	30.15972876	31.07299505
2006	235.1010813	263.0261298	141.2839855	83.38305296	76.60404611	41.80426148	39.6814933	34.29992318	29.77298333
2007	243.3266261	244.3964076	151.142629	88.94915093	75.7879021	39.78902891	38.28957427	25.952939	27.8910165
2008	248.5374924	249.7687847	147.9594449	85.56508105	77.78403961	40.11444972	36.98466987	21.64791185	27.20281623
2009	252.751997	248.4864042	138.6553675	83.95954294	74.960312	39.36525579	32.7380138	22.44880964	24.54238668
2010	253.1162464	252.2284354	142.4675766	84.64534169	72.42422614	39.83038719	30.11356126	26.42499956	22.20601555
2011	259.0933406	245.059033	142.5003633	88.26807486	71.02701654	40.07965818	30.55054262	29.85306476	23.65615224
2012	261.537134	244.7511146	147.1974623	86.13728289	71.59350545	44.60777166	31.40898353	29.59768173	24.1228767
2013	261.2261103	250.163689	152.222567	83.47651618	71.18636623	46.15009939	33.03655969	26.92719354	24.00285875
2014	268.8217472	258.3252594	155.2341231	91.29458376	71.54731089	44.38910013	34.02008288	26.38691822	23.18319784
2015	270.1981054	263.9787661	161.782259	91.50005373	71.78092996	44.91935131	34.95143067	22.84688395	22.49074163
2016	272.3474731	266.3150279	160.8777362	92.38562388	70.84193288	48.76227391	35.83581548	21.36037202	22.66626859
2017	274.7857794	270.1651743	164.661595	93.45879494	68.16941746	46.97302657	36.15844528	21.62547785	21.9541159
2018	280.2902792	276.0532927	169.0973625	94.30430483	67.15581327	46.86622459	36.94581283	21.79916212	22.56893355
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The strain on existing development models is compounded by demographic pressures - for example more than 50 percent of the population living across the Middle East is under the age of 30; the proportion is above 70% in Nigeria. Income from oil and gas will not be sufficient to create opportunities for all those looking to enter the workforce.

Charting the path forward

The reform agenda for producer economies is much wider than energy - a major purpose is to expand opportunities across other sectors of the economy. That said, overall reform efforts stand to benefit significantly from a well functioning energy sector, which can provide an effective platform – both in terms of revenue and comparative advantage – for achieving broader social and economic objectives.

Outlook for Producer Economies 2018 outlines six areas in which the energy sector can help:

  • Capturing more domestic value from hydrocarbons, by investing further downstream in refining and petrochemicals.
  • Using natural gas strategically in support of diversification goals: gas is less lucrative than oil, but it can underpin an industrial strategy in a way that oil cannot.
  • Tapping the huge, under-utilised potential of low-carbon energy. There is huge scope to increase cost-effective deployment of renewables and nuclear power (in some countries).
  • Phasing out subsidised consumption of fossil fuels: pricing reform, combined with a push on energy efficiency, can reduce wasteful consumption while retaining an economic advantage from energy
  • Ensuring adequate investment in the upstream: the ability to maintain oil and gas revenues at reasonable levels provides an important element of stability for the economy as a whole Supporting advanced energy technologies: many producers have world-leading expertise that can support innovation and reduce the environmental footprint of oil and gas supply.

For further information, see the commentary "Economic diversification for oil and gas exporters doesn’t mean leaving energy behind" by report authors Tim Gould and Ali Al-Saffar or watch the full webinar on our YouTube channel. 

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