Twenty per cent of anticipated investments in the oil and gas sector by state-owned oil companies, including the Nigerian National Petroleum Corporation, are economically unviable if global warming is to be kept within 2oC, a new report has said.

The Natural Resource Governance Institute, in the report titled ‘Risky bet: National oil companies in the Energy Transition’, quantified the incompatibility of NOCs’ investment plans with the Paris climate agreement.

“With the United States rejoining the global coalition to meet the objectives of the Paris climate agreement, oil producers face a moment of reckoning,” it said.

State-owned national oil companies — many in developing countries — are on a trajectory to spend billions on oil and gas projects that will only break even if the world fails to meet the Paris goals, according to the report.

Using market data, NRGI’s report estimates that NOCs, responsible for 40 per cent of the capital invested in the industry worldwide, could invest about $1.9tn in the next 10 years.

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“Of this, about one fifth, or $400bn, would not result in a profit if the energy transition proceeds in line with current climate commitments. If widespread carbon capture and storage technologies are not deployed, this figure would climb even higher,” it said.

The researchers said, “Almost half of the Nigerian NOC’s (NNPC) upcoming oil project spending — an amount that exceeds the government’s expenditures on education and healthcare — may fail to break even if the world makes rapid progress towards climate goals.”

“A huge amount of state investments in oil projects will likely only yield returns if global oil consumption is so high that the world exceeds its carbon emission targets,” said Patrick Heller, an NRGI advisor and one of the report’s co-authors.

According to him, this risky spending has major implications for the economic futures of national oil companies’ home countries.

“State-owned oil companies in developing and emerging countries including Algeria, Mexico and Nigeria might collectively invest more than $365bn in such high-cost projects — expenditures that could instead help alleviate poverty or diversify their oil-dependent economies,” he added.

Heller said national oil companies would have a major influence on the success of the push for a managed decline in fossil fuel production worldwide.

He said, “Authorities in many producing countries risk pushing ahead with new investment regardless of what is economically and ecologically feasible, and the outcomes could be dire.

“If international oil companies and private investors make good on their stated ambitions to move away from hydrocarbons, state actors may be even more tempted to step in and fill the gap in oil production.”